Small Business Loans: What You Need for Approval
Do you need money to grow your small business? A small business loan can be a great option, but approval isn’t always easy to come by. Banks and other lenders have specific requirements that businesses must meet to be approved for a loan. Here’s what you need to know about securing funding for your new company.
You Need a Plan
A well-thought-out business plan is one of the most important things that lenders look for when considering a small business loan. This document should outline your business goals, strategies for achieving them, and how you plan to use the loan money. Lenders want to be sure that you’re not just asking for money without a plan to put it to good use.
So make sure you have a solid business plan before applying for a loan. If you need help to put one together, plenty of resources are available online or from your local Small Business Administration office.
Determine the Type of Loan You Need
Not all small business loans are created equal. There are a few different loans that you may be eligible for, and each one has its own set of requirements. The most common small business loan is a term loan, a fixed-amount loan that is repaid over a set period. This type of loan is ideal for businesses that need a lump sum of cash to invest in new equipment or real estate.
Another option is a line of credit, which can be used as a credit card to finance business expenses as needed. This type of loan is best for businesses with fluctuating costs or those who need a safety net in an emergency.
Lenders will also consider the purpose of the loan when making a decision. For example, a lender may be more likely to approve a loan for inventory expansion than marketing expenses.
Know Your Credit Score
Your credit score is another important factor lenders consider when deciding on a small business loan. This number reflects your creditworthiness and how likely you are to repay a loan.
If you have a good credit score, you’re more likely to be approved for a loan. You can check your credit score for free at sites like Credit Karma or Experian. If you have a low score, work on improving it before applying for a loan. There are a few things you can do to boost your score, such as paying your bills on time and keeping your credit card balances low.
Have Collateral Ready
Many lenders will require collateral for a small business loan. This means that you’ll need to put up something of value as security in case you can’t repay the loan. The most common type of collateral is real estate, such as your home or office. But you may also use equipment, inventory, or even receivables as collateral.
If you don’t have any assets that you can use as collateral, you may get a loan from a lender that doesn’t require it. But you’ll likely have to pay a higher interest rate. Small business loans can be a great way to finance your company’s growth, but it’s important to know what lenders are looking for before you apply. By preparing a well-thought-out business plan and meeting all the requirements, you’ll give yourself the best chance of being approved for the loan you need.
