A business loan can be the key to take the next big step in your professional life, whether you’ve just decided to open a business or are an experienced entrepreneur. But for a lot of business owners, figuring out how to qualify for a small business loan can be intimidating. To apply and qualify for business loans can feel overwhelming. But with the right preparation, it doesn’t have to be a difficult process. Online lenders are often happy to provide funding if they can see that you’ve done your homework and have a strong plan for the future.
Are small business loans hard to get? Not if you do your research on how to qualify for a small business loan. To make yourself more attractive and improve your chance of getting funding, follow these seven steps to get the funding you need to grow your business:
1. Know the Business Loan Requirements
Each lender has slightly different criteria for deciding who qualifies for business loans. Most have minimum requirements for annual revenue, personal credit score, and business experience. They may also take points off for incidents in your financial history like past bankruptcies or outstanding loans. If you don’t quite meet some of the criteria, some lenders may be flexible if you can prove your reliability a different way.
For example, they may agree to your loan if you have very little experience but impressive annual revenues and a perfect credit score. However, it will make the application process bumpier. If you’re applying specifically for small business grants from the Small Business Administration, remember that they have their own separate criteria you’ll have to meet.
2. Write a Long-Term Business Plan
Lenders rely on a detailed business plan to help them judge how risky it is to give you a loan. As a general rule: the more information the better. A business plan usually includes a description of who you are and what you offer customers, information about the market you operate in, an outline of your strategy and plans for the next 3-5 years, and a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for your company. The most important information to include here is financial data. Your plan should have detailed information about your revenue and profits, how you plan to use the loan, and projected revenue based on that investment.
3. Prepare Assets and Collateral
Some lenders will require you to provide collateral – major business assets, such as real estate or equipment, that the lender can take and sell if you can’t pay back your loan. Other lenders will ask that you guarantee your loan with personal assets and others will want some combination of the two. The way you qualify for a small business loan may vary.
4. Check Your Credit Score
How easy is it to get a small business loan? That depends heavily on your credit score. Your credit score is an analysis of how likely you are to repay your debts based primarily on your payment history. This includes everything from student loans to credit card bills and car payments. For most small businesses, your personal credit score is the important one. However, more established business owners may also have a business credit score.
5. Plan Professional References
Some lenders may want to speak to other people who know you and your field. Lenders can’t know every field inside and out and it can be hard to evaluate your experience and expertise. Therefore, they may want to hear from established people who do understand your profession. Former employers, clients, and colleagues are all good choices for this. Make sure to ask people who you know were happy with your work to provide professional references, and to ask for their permission before you list them as a reference or provide their contact information.
6. Gather Legal and Financial Documents
How easy is it to get a small business loan? That depends on how organized you are. You’ll have to gather a long list of documents, including lots of paperwork you already have, but probably not all in one place. The list is likely to include your drivers’ license or another form of ID, leases, balance sheets, tax returns, financial projections, and even your resume.
7. Get Business Insurance
General liability insurance is your safety net and if you get a loan it provides a safety net for the lender, too. It helps makes your business secure, which increases the odds that you’ll pay back your loan. It also demonstrates that you’ve taken precautions and presents an image of a financially responsible business owner.
“Is it hard to get a small business loan?” has a different answer for everyone. But if you do your research, have a strong data-driven financial plan, and understand how to qualify for a business loan before you start, you’re well on your way to the next step in your career.