You just can’t do business without taking out a loan at some point. A business loan could provide the funding you need to grow your business, buy new equipment, or just cover payroll while you wait for a big contract to pay out.
How do you qualify for a business loan? The process of applying for a small business loan can be exhausting. Sorting through all your options is time-consuming, and then there is the back-and-forth you have to do with the lender while they are underwriting your loan.
Making sure you have all the things you need to qualify for a business loan in advance can streamline the process and make it more likely that you’ll get your loan.
How to Qualify For A Business Loan
If you are eyeing growth or expansion for your business, going for a business loan is a strategic move. The process may seem daunting, but with the right approach, you can secure the funding you need.
Here are some tips on how to qualify for a business loan.
1. Work on Your Credit
You’ll need a good credit score in order to qualify for most business loans. You should have a personal credit score of at least 690 or excellent business credit in order to qualify for a loan, although some alternative lenders will make business loans to individuals with personal credit scores as low as 500.
If you’ve been in business for a while, you will have a substantial business credit history and won’t need to use your personal credit score to apply for a business loan.
If you are just starting your business, you will probably need to use your personal credit profile to apply for a loan, so work on strengthening your credit if you need it. Pay your bills on time and dispute any inaccuracies in your credit report.
Get a copy of your credit report from AnnualCreditReport.com for free.
2. Shore Up Your Budget
You will need to make sure there is room in your budget for loan repayments. Eliminate waste and implement credit checks for clients who want credit.
You need to be bringing in 1.25 times your monthly operating expenses in order to stay solvent. So, if you are bringing in $10,000 a month, your business’s operating expenses can’t exceed $8,000 a month, including loan repayments.
You’ll need to prove your annual revenue in order to get a small business loan. Some lenders will only give loans to borrowers that meet a certain minimum threshold for monthly or yearly revenue.
If you have low revenue, you may need to turn to alternative options offered by online lenders, like merchant cash advances or invoice factoring.
3. Prepare a Proposal or Business Plan
Lenders are going to want to see how you plan to spend the loan money. You need to draw up a business plan (if you are just starting out) or a proposal for how you plan to use the money to grow your business.
Even lenders who give out small business loans for women and other marginalized groups require a proposal that outlines how you plan to use the money and how you plan to get the funds to repay it.
4. Collect Your Documentation
Most lenders are going to require a lot of documentation as part of your loan application. You are going to need to submit documentation supporting your monthly or yearly revenue numbers, as well as proof of cash flow and future financial projections.
A forecast and financial report that factors in the loan amount can reassure lenders that you are going to make good use of the money and that you’ll be able to repay it as agreed.
Preparing these documents can also help you decide how much loan money to ask for. You’ll pay unnecessary interest if you borrow too much, and if you borrow too little, well, you won’t be able to meet your goals. The loan estimate can also help you determine whether loan repayments will fit into your budget.
5. Fill Out Your Loan Application Properly
Filling out a loan application can be complicated, but it is important to include everything the lender needs and to have everything in your application formatted according to lender guidelines.
Messing up your loan application can lead to unnecessary back-and-forth with the lender, and can delay your loan disbursement. If you need help filling out your loan application, you can seek it from your community’s Small Business Development Center. They can help you ensure that your loan application is complete and correct.
Qualifying for a business loan may not be as hard as it sounds, especially these days when there are so many alternative online lenders willing to give out small business loans even to startups or business owners with bad credit.
Take the time to put together an application that will show lenders they can trust you, so you can get your loan and move forward with your plans for the funding.
I am Adeyemi Adetilewa, an SEO Specialist helping online businesses grow through content creation and proven SEO strategies. Proficient in WordPress CMS, Technical Site Audits, Search Engine Optimization, Keyword Research, and Technical Writing (Portfolio).
Founder and Editor-In-Chief of Ideas Plus Business Magazine, an online business resource for entrepreneurs. I help brands share unique and impactful stories through the use of public relations, advertising, and online marketing. My work has been featured in the Huffington Post, Thrive Global, Addicted2Success, Hackernoon, The Good Men Project, and other publications.