If you want to boost cash flow, manage business expenses and plan for future growth, you can go for a business loan. A business loan may differ based on the business size you run but it can always help your business financially.
To take a loan, you need to follow the required criteria set by the lender based loan’s type. In addition to it, you should be absolutely clear about the loan requirements as an applicant. By knowing it, you will be able to get your loan approved without any hassle.
In this article, you will learn about the top 10 business loan requirements you should know. So, without any delay let’s get started.
Consider these business loan requirements before you apply
- Business Plan
Before going for a loan, make sure you have a full-proof business plan. Because when you go to lenders or banks for loans, you will have to show your business plan. Your business plan must be convincing for lenders. It should have a clear objective about how you will utilize the funds to start the business and scale it up in the future.
Your business plan should clearly show the present and future objectives of your business. That is why it is important to create a complete plan on a piece of paper. The plan should consist of things like your business mission, market research findings, financial goals, etc.
- Have a long-term business goal
When you reach lenders for a loan, you will have to clarify the long or short-term vision of your business. But note that a long-term business goal will put more impact on lenders compared to short-term business goals. However, you can apply for a loan as a small business owner if you are in business for less than two years. But here you won’t have more funding options.
- Your credit score
It doesn’t matter if you are applying for a business loan or something else, financial lenders will always want to know your credit score. So it is good to have a higher credit score that will increase the chances of getting approved for a loan.
If we talk about a minimum credit score, it should be around 600. This credit score is considered ideal for financial help. However, a bank or SBA loan requires a higher credit score.
- Business credit score
If you want to get financial help, you should also look at your business credit score. It is as important as your personal credit score. This type of credit score lets the financial lenders know how well your business is performing against debts and payments. Your credit score depends on various factors like the industry in which you are doing business, size, and revenue.
If you are running a business without any credit, your personal credit score will be taken into use. For this reason, you need to check your credit score before you apply for a loan.
- Financial documents and bank statements
Your bank statements and other financial documents are checked by money lenders to make sure you can pay money borrowed. Your bank statements are the right place for lenders to analyze the cash management of your business. Lenders might ask for bank details of at least four months. The required financial documents will include:
- Balance Sheet
- Profit and Loss Statement
- Accounts Receivable Statement
- Tax returns
Moneylenders will also check your business and personal tax returns to know about your finances. Tax returns are considered by lenders to know if you are able to pay back your loan amount.
To assess your business finances, you will need to submit your personal tax returns for the last two years.
If we talk about business tax returns, it is important if you run a registered business like a corporation or an LLC. If it is the case, the moneylender will go through the tax returns of your business for at least the past two years. It will help to ensure your business expenses, revenue, and profit.
- Use of funds
Financial institutions provide loans to cater to business expenses like commercial property, equipment, payroll, inventory, and expansion projects. You will have to clear your lenders about your funds’ utilization in the business. The need for your loan must be transparent.
- Business loan amount
It is also important to decide how much you want to borrow as a business loan. The amount you have to borrow should be based on your need for money in your business.
If you want to take a six or seven-figure worth of funds, you should go for a traditional bank loan. A large amount of loan involves sticker requirements. So make sure you are ready for that.
You can go with an online lender if you need a smaller business loan. Borrowing money online doesn’t require stricter rules but the amount may be lower.
- Business licenses and permits
If you want to run your business, you will need the required licenses and permits. Having a business license or permit is crucial to operating in a particular region.
Further, when you go for a loan to a lender, you will be asked for permits that will allow you to run the business in a particular state or locality. Showing licenses and permits makes a business a legal entity in front of lenders.
- Collateral
You might also need to secure your business loan through collateral like real estate, inventory, and equipment. Collateral is nothing but your assets such as property or equipment. Keep in mind that when you use collateral against a loan, you need to prove it through legal documents.
Conclusion
As a startup or new business owner, you might face challenges in meeting loan requirements. But there are some lenders in the market to provide loans to a business with an operation history of fewer than two years. Moreover, go through this article if you want to know required things about a loan.
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