Qualifying for a Small Business Loan
Millions of Americans have dreams of becoming their own boss and opening up a small business. However, the first step to opening any business is funding. Businesses need funds from reliable sources like community banks in order to get started. But first, in order to qualify for a loan, the business (or prospective business) has to prove it is worthy. Here are some steps to help small business owners qualify for a small business loan.
One helpful way to qualify for a small business loan is to have the best credit score possible. A high credit score shows that you are an individual who has a track record of paying their loans back on time. This is especially true for community banks who want to lend to local business owners but also need security with those loans. Business owners can improve their credit scores by always paying loans and bills back on time.
Another way to aid one’s qualifications is to have a reasonable, sophisticated business plan. Banks only want to lend to individuals and businesses that they think will pay their loans back. In order to prove to a bank that you are a worthy credit risk, you must show them a clear, competent plan for how you plan on spending their money and then paying them back. A business plan must have clearly defined goals and timelines. You must have all relevant points covered. These include labor, capital, location, product, and target audience. There needs to be a clear and precise argument that the business plan laid in front of the bank will be able to make enough money for the bank to receive their loan back, plus interest.
The third way to qualify is to provide collateral. Collateral is the term for property which is offered up and may be seized by the creditor if the terms of a loan are not fulfilled by the debtor. Putting up collateral can sometimes be a risky move since it can raise the possibility of the debtor losing their car or some other critical piece of property. However, it does give a bit of extra certainty to the bank and makes it easier for the debtor to receive a loan at a reasonable interest rate.
Any small business interested in receiving a loan needs to take the steps mentioned above before visiting a bank. These can make the difference between gaining an affordable loan and being forced to have either a high-interest loan or no loan at all. Make sure to consider the nature of your business and the interests of the bank before asking the bank for a small business loan.