Everyone knows how difficult qualifying for a loan can be. However, with the right amount of preparation, qualifying for a small business loan is more accessible than one might think. Every lender has their own set of requirements, but most require the following criteria. Here are the requirements before applying for a small business loan.
An Ideal Credit Score
As with any loan, having a good credit score is crucial to being approved—the higher a person’s credit score, the higher the chance of eligibility for a small business loan. Lenders will pull a person’s credit to determine if able to pay back the money borrowed. A person’s credit measures their eligibility on how and if the person will pay back the loan.
If a person’s credit score is less-than-ideal, then the chances of being approved may be significantly decreased. Lenders want to give loans to people they can trust. Having a low credit score makes applicants high-risk, and most lenders don’t want to take that risk. If the score is too low, the first step is to pay off outstanding debt and write off any discrepancies or errors on the credit report.
The Right Documentation
Once the credit score is improved, the next thing lenders want to see are specific documents. In the case of a small business loan, applicants have to provide documentation including:
A resume with enough experience
Any commercial leases
Their driver’s license
Some of these documents might be a little tough to acquire because of time constraints. However, being able to show most, if not all, of these documents shows responsibility.
The Age of The Business
In some cases, new businesses may have a difficult time getting a small business loan. While this isn’t always the case, a company in operation for at least two years has a higher chance of getting approved for a loan. That may mean business owners need to bootstrap or crowdfund the company initially. It’s also worth mentioning that lenders look at the debt-to-income ratio of the business. If there’s more debt than income, the chances of getting a loan are slim.
Small business loans can give businesses a boost, regardless of whether they’re a startup or an established brand. A small business loan can help business owners gain traction, open a new location, or even rebrand themselves. The key to being approved is proper organization and presentation.