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If you’re a small business owner who needs fast capital, lenders offering short-term loans might be the answer to your prayers. Unlike traditional banks, short-term lenders typically ask for minimal documentation when you apply for a loan, making the application process much easier and quicker.
What exactly are these small business lenders looking at when they go through your business loan application?
And why do they care about your bank statements specifically? Here’s what you need to know.
When you apply for a small business loan from a short-term lender, what kind of documents will you need to gather before you hit ‘submit’?
If you’re in a rush to get the business funding you need, lucky you—the list of business loan requirements for short-term loans isn’t too extensive.
The list of documents is, generally, the following:
Gather those documents, fill out your loan application thoughtfully, and you’re ready to submit to short-term lenders.
But there’s one hitch to the otherwise straightforward application process: those bank statements.
If you own a seasonal business whose income goes through extreme ups and downs throughout the year, putting together the most recent 3 months’ worth of bank statements as a part of your short-term loan application might be painful.
Most short-term lenders ask for the most recent 3 months’ worth of bank statements as part of your loan application. However, they average those 3 months out and use that number to determine your small business’s annual revenue.
This can cause you some problems if your average doesn’t reflect your actual revenue. For example, suppose you own a retail business and the winter holidays are your busiest season. If you apply for a loan in July, when your sales are slow, you’ll have to share your business bank statements for April, May and June—not your best sales months. As a result, your bank statement will show a lower income, averaging out to an annual income that doesn’t accurately represent your business.
Getting the best possible loan for your seasonal business from short-term lenders requires some strategizing. If you’ve been in business for a while, you’ll have the benefit of previous years’ financial statements to review. You can see which three-month period has the highest average sales, and base your application off of that.
For instance, that retail business probably does most of its sales in October, November and December, or in November, December and January. If that’s the case, that business owner would get the best results by applying for a business loan in January or February, so that he or she could share the year’s best bank statements with the lender.
If your seasonal business is a startup, applying for a business loan will be a bit more of a guessing game. However, you should still be able to estimate which months will be your most profitable, and time your loan application to fit that timeframe. In general, though, the best time to apply for a business loan will depend on the kind of business you run.
Here are some other tips to up your chances of successfully getting a loan for your seasonal business from a short-term lender: