Three Keys to Qualifying for a Small Business Loan
Those concerning themselves with the cut off for qualification for a small business loan can rest easy, as these loans have proven themselves much more accessible for average Joes and Janes over the last few years. Around 2009, when the economy bottomed out, it was difficult for people to get loans of any type. Banks got tight with their financing, giving cash only to those with excellent credit and an established business record. Today, getting a small business loan has become easier. One still must meet certain thresholds to qualify, but no longer do candidates have to be perfect and pristine to get their hands on small business dollars.
Good Personal Credit History
When it comes to your business, you might think that there’s separation between your corporate and personal interests. This is true in many respects. In terms of small business funding, however, you’ll be asked to present a clean bill of personal credit health. You don’t need to be perfect. You do, however, need a credit score north of 700 and a report free of bankruptcies and foreclosures. Applying for a small business loan is not like buying a house. Your lender will take a more holistic approach. Even with that said, many have been denied because their personal credit report featured some major blemish without the requisite good history to balance it out.
A Well-Articulated Business Plan
Lenders will want to know that the money is being spent for legitimate business purposes. With this in mind, they’ll often come to you with two questions. First, they will want to know whether you have a business plan to help your company through the difficult times you might face. The existence of a solid business plan provides the lender with assurances that your company will remain solvent enough to make the required payments.
In addition, lenders will want to know precisely what you’ll do with the borrowed cash. Maybe you’re a jewelry store owner who needs to purchase a piece of technology that will allow you to up your sales to meet demand. Perhaps you are a restaurant owner who needs to expand in order to meet the needs of your community. The lender will like to see that you’re using the money to make more money. While it is possible to get a small business loan to help bring your company from the brink of business danger, lenders will often want to see something more from you.
Collateral Can Help
Not all small business lenders require collateral for their loans. Some will provide unsecured loans if you have the other qualifications. If you happen to lag behind a bit on credit score or you lack a long-term business record, then you may be asked to put down collateral in order to secure the loan. Often, this collateral will just be the thing that you are hoping to purchase with the small business loan. For instance, a butcher buying new freezer equipment may use that as collateral on the loan that allowed him to make the purchase. This way, the small business lender knows that even if your business happened to fail, the lender could still recoup its loan by selling off the property.