What Do I Need For A Business Loan?

We have assembled a list of what you will need in order to apply for a business loan. This includes a business plan, tax returns, and more.

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Business Loan Basics

Before you can even begin to think about getting a business loan, you need to have a clear understanding of what a business loan is and what it entails. Business loans are types of financing that allow you to access capital that you can use to grow your business. But before you can qualify for a business loan, there are a few things you need to have in place. In this article, we’ll give you a rundown of everything you need to know about business loans.

Types of Business Loans

There are many types of business loans available, each with its own advantages and disadvantages. The type of loan you choose will depend on your business’s needs and the amount of money you need to borrow. Here are some of the most common types of business loans:

-SBA loans: These loans are backed by the Small Business Administration and typically have low interest rates and long repayment terms. They can be used for a variety of purposes, including expanding your business, purchasing equipment, or covering operating expenses.

-Bank loans: These loans are typically offered by banks and credit unions. They can be used for a variety of purposes, but they often have higher interest rates than SBA loans.

-Equipment financing: This type of loan is used to finance the purchase of new equipment. The equipment itself is usually used as collateral for the loan, so it’s important to choose equipment that will hold its value over time.

-Invoice financing: This type of loan allows you to borrow against outstanding invoices. The invoices act as collateral for the loan, so it’s important to only borrow against invoices from reliable customers who are likely to pay in a timely manner.

How to Qualify for a Business Loan

There are a number of factors that lenders will take into account when determining whether or not to approve a business loan request, but some of the primary considerations include:

-The creditworthiness of the business and its owners
-The collateral available to secure the loan
-The strength of the business’s financials
-The experience of the business’s management team

Generally speaking, businesses that are newer and/or have weaker credit histories will have a more difficult time qualifying for loans than those that are well-established and have strong credit histories. That being said, there are still a number of financing options available for startups and other high-risk businesses.

Types of Business Loans

Business loans come in many shapes and sizes. Depending on your business’ stage of development and your needs, you might choose a different type of business loan. The most common types of business loans are lines of credit, SBA loans, term loans, and equipment financing.

SBA Loans

The Small Business Administration (SBA) is a United States government agency that provides support to entrepreneurs and small businesses. The SBA does this by guaranteeing loans made by banks and other lending institutions, which protects the lenders from loss if the borrower defaults on the loan.

The SBA has several different loan programs, each with its own eligibility requirements and purposes. The most common type of SBA loan is the 7(a) loan, which can be used for a variety of purposes, including working capital, equipment purchase, real estate purchase, business acquisition, or even business expansion.

Other types of SBA loans include the 504 loan program, which is designed for small businesses that need to finance major fixed assets such as real estate or equipment; the microloan program, which provides very small loans to start-up businesses or businesses with limited operating history; and the disaster assistance loan program, which provides disaster relief loans to businesses that have been affected by a declared disaster.

Traditional Bank Loans

Traditional bank loans are the most common type of business loan. They are typically made by commercial banks, credit unions, or savings and loans. They can be used for a variety of purposes, including working capital, equipment purchase, vehicle purchase, inventory purchase, real estate purchase, and more.

Traditional bank loans are usually made on a secured basis. This means that the loan is backed by some type of collateral, such as a vehicle or piece of equipment. If you default on the loan, the lender can seize the collateral to recoup their losses.

Traditional bank loans typically have lower interest rates than other types of loans. They also tend to have longer repayment terms, which can make them easier to manage from a cash flow perspective.

Online Lenders

If you’re looking for a business loan, you may have come across online lenders. These are companies that use the internet to connect borrowers with lenders, often in real time. Online lenders tend to use modern technology and data analytics to make lending decisions, and they often have more flexible underwriting standards than traditional banks.

Some online lenders specialize in loans for specific types of businesses, such as startups, while others offer loans for a variety of business purposes. Typically, online lenders offer shorter-term loans than banks, and they may have higher interest rates. However, they may also be more willing to approve loans for businesses that are not yet profitable or have less-than-perfect credit.

If you’re considering an online lender for a business loan, be sure to compare multiple offers to find the best rate and terms. Also, be aware that some online lenders require personal guarantees from the owners of the business, which means you could be personally responsible for repaying the loan if your business defaults.

How to Qualify for a Business Loan

Many factors are considered when applying for a business loan, such as credit score, business history, and the amount of collateral you have. To increase your chances of getting approved, it’s important to understand what lenders are looking for and to put your best foot forward. In this article, we’ll give you an overview of the qualifications lenders typically consider when approving (or denying) a business loan.

Personal Credit Score

One of the most important things that lenders will look at when considering you for a business loan is your personal credit score. Your personal credit score is a numerical representation of your creditworthiness, and it is one of the main factors that lenders use to determine whether or not to approve your loan.

If you have a high credit score, it means that you have a history of making timely payments and managing your debt responsibly. On the other hand, if you have a low credit score, it could signal to lenders that you are a higher-risk borrower and may be more likely to default on your loan.

To Qualify for a Business Loan, aim for a Personal Credit Score of:
-690 or higher: You will likely qualify for most business loans with favorable terms.
-640-689: You may still qualify for some loans, but you may be subject to higher interest rates or less favorable terms.
-630 or below: It may be difficult to qualify for loans with favorable terms. You may need to explore other financing options, such as government-backed loans.

Business Credit Score

One of the first requirements that you will need for a business loan is a strong business credit score. This is because your business credit score is one of the key factors that lenders look at when considering you for a loan. A good business credit score indicates to lenders that you are a low-risk borrower, which means that they are more likely to approve your loan. To build a strong business credit score, make sure to always pay your bills on time and keep your balances low. You can also get a business credit card to help build your business credit score.

Collateral

One of the most important things to consider when you’re trying to qualify for a business loan is collateral. Collateral is an asset that can be used to secure the loan and it can come in many forms including real estate, equipment, inventory, or even accounts receivable. The more collateral you have, the better your chances of qualifying for a loan. Lenders will want to see that you have something to offer as security in case you default on the loan.

Time in Business

The minimum time your business must be in operation to qualify for most traditional bank loans is two years. If your business is less than two years old, you may still be able to get financing from some alternative lenders, such as some online lenders and peer-to-peer lending platforms. These lenders often have more flexible eligibility requirements than banks do, but they usually charge higher interest rates and fees.

Annual Revenue

To qualify for a business loan, most lenders will require that you have at least two years of annual revenue. This is to ensure that you have a strong history of financial stability and are more likely to be able to repay the loan. If you do not have two years of annual revenue, you may still be able to qualify for a loan if you have a strong business plan and can provide collateral.