7 Business Loan Requirements You Should Meet
13 Jun, 2016 / Comments: Comments Off on 7 Business Loan Requirements You Should Meet / By William Mahnic
Having a great business idea is not enough to get your business started – you need plenty of capital, which is usually hard to come by if you are just starting out. If you are not independently wealthy, you will likely need a business loan to help you get started and possibly stay in business. In order to qualify, there are many requirements you have to meet – here are a few to get you started off on the right foot whether you plan to apply with a commercial bank, regular bank, or credit union.
1. A Plan is Crucial
Having an idea in your head is not enough; you must have a very detailed written plan to show the banks what your business goals are and what you plan to use the money for. If you are just starting out, you can provide documents that include your business plan and projected income statements in order to qualify. Every document that you provide must have evidence to back it up. Just estimating that you will make “x” amount of money per month is not enough; lenders need to see that you have a target audience and a detailed plan to execute your plans to that audience in order to accurately predict your future sales.
2. Great Personal Credit
Your personal credit plays an important role in your business loan if you have not started your business yet or if you have only been in operation for a short amount of time. Your personal credit score is important because it shows your level of financial responsibility. If you cannot handle your personal finances, chances are handling business finances will not be successful for you either, deterring banks from providing you with a business loan. Banks usually look at the last 12 to 24 months of your personal credit history, so planning for the future is crucial when you want to be a business owner.
3. Good Business Credit
All that you need is one year in business in order to have adequate business credit. This report will show the same items that your personal credit report shows – the liabilities that you have and how you pay them. If you pay your debts late, the bank you are applying with will be able to see that and use it to weigh the pros and cons of providing you with a new loan.
4. Collateral Helps your Case
Just like with a personal loan, banks need a guarantee that they will be able to make up the money if you default or if you become unable to pay your business loan. Collateral, either personal or business, can help to enhance your ability to secure a business loan. This collateral can be things like the building your business will operate in, the equipment you will use, or even your inventory – something of value that the bank can take possession of if you were to default is what they look for.
5. A Solid Resume
Having the best idea for a business will not do you any good if you do not have the experience to back it up. Your resume should show the proper experience in the industry you plan to create a new business in so that you can show you know what you are doing. The right experience can help you create a successful business because you already have an idea of the target audience, what to expect, and how to sell your product or service.
6. Managerial Experience
Experience as a manager gives you a leg up when you apply for a business loan. If you started out as an employee, starting a new business and a new position as the manager can be a lot to take in at once. A few years of managerial experience can make a world of difference in your ability to get a business loan because it lowers the risk that the bank takes on you.
7. Current Financial Information
If your business has been in operation for at least one year, you will need to provide the lender with current financial statements. These statements should include income and liability statements, along with a current YTD Profit and Loss Statement.
A business loan is not impossible to get, even if you are just starting out. What banks want to see is a plan with plenty of thought put into it along with experience and plenty of assets. You might have to put up personal collateral if you are just starting out or if you have personal credit issues that make a bank unsure about providing you with a loan. There are many options to secure bank loans for business purposes with private and commercial banks as well as the SBA.