Does your business need an infusion of cash to help it grow? A business loan can provide you with the resources your business needs and offer an affordable payback plan.
Here’s all you need to know about applying for a business loan:
Check your credit
Before you apply, check your personal and business credit health.
Personal credit scores range from 300-850. A score that falls in a range of 580-669 is fair, 670-739 is good, 740-799 is very good and 800-850 is exceptional.
Business credit scores are measured differently. Experian uses Intelliscore Plus as its credit scoring model, with scores ranging from 1 to 100. Equifax assigns each business a payment index score, which ranges from 0 to 100; a credit risk score ranging from 100 to 992 and a business failure score ranging from 1,000 to 1,880. The D&B score, assigned by the Dun & Bradstreet Corporation, ranges from 0 to 100. Finally, the FICO Small Business Scoring Service score ranges from 0 to 300.
If your personal and/or business credit scores are low, work on improving your credit before applying for a loan.
Update your business plan
Be sure to have a comprehensive business plan to show a prospective lender. The plan should include details about how the company intends to use the funds, the anticipated increase in revenue and plans for repaying the loan.
Consider arranging supplemental collateral
Lenders prefer to reduce the risk of a borrower defaulting on a loan by securing collateral for the loan. For business loans, this usually takes the form of the company’s accounts receivable, equipment or other assets.
When applying for a business loan, you can offer additional collateral to the lender, such as personal assets like real estate. This will make you more likely to qualify for the loan and may bring down the interest rate on your loan.
Organize your personal and business documents
You’ll need the following documents and identifying paperwork to apply for a business loan:
- Photo ID
- Accurate monthly financial statements from the past two years
- Business license
- Any commercial leases
- Business insurance plans
- Payroll records
- Incorporation documents
- Current financial obligations
- 3 months of bank statements
- Personal and business tax returns
Research potential lenders
It’s best to take some time researching potential lenders before applying for a loan. Learn about each lender’s eligibility criteria and the average interest rates on their loans.
Consider applying for a business loan through a credit union. A credit union will offer you personalized service, looser qualifying criteria and a competitive interest rate.