Starting your own business or expanding an already operating business might seem a very bright and a profitable idea, however, most people do not have the credit or financial support to implement it. To overcome this issue people often turn to the traditional lenders such as a bank or financial organizations that offer small business loans or business loans offered by the government or seek assistance from SBA.
In either case you should know the basic requirements for the process of small business loan generation so you can prepare yourself accordingly.
My article highlights all the important points you need to keep in mind to get a business loan:
Purpose for Getting the Small Business Loan:
It’s not easy to get money or small business loan out of another man’s pocket. The lender expects you to vividly state your current and future plans for their own assurance. Make up your mind about the main purpose for which you need to get the loan and make sure it’s strong enough to catch your lender’s interest.
Most business loans are for the following purposes:
- Starting a new business
- Expanding your established business
- Buy equipment as per your business
- To raise the working capital
- Payback an existing debt
By thoroughly going through the state of your business consider if you are in need of a loan, and if you are then what exactly is the purpose of your loan.
- Eligibility Criteria:
The eligibility criteria to get a business loan depends upon a number of factors and some important of them are as follows:
- Credit Score: Different banks and organizations have different standard credit scores for the eligibility for the loan. For example, maximum banks want borrowers with credit score above 680.
- Experience: You need to have at least one-year experience in your operating business to get most online loans and minimum two years’ experience to get a loan from the bank.
- Annual Revenue: The average range for annual revenue lies between $50,000 or $150,00 in most loan lending organizations and banks. Evaluate yours before you apply.
- Repayments: Carefully evaluate your business’s financials especially the profit so that you can find out the most reasonable amount for the installments you can afford to repay the loan. Your income should be 1.25 times your expenses including the repayment amount for this purpose.
- Character and Reputation: In addition to all this your character and the reputation of your existing business is of prime importance. Make sure that your business is by all means and laws a legal business and you as the owner is of fine character and all your employees are people of excellent qualities.
Keeping in mind all the above points makes you eligible to apply for a business loan.
Small Business Administration (SBA):
The most appropriate and famous assistance for small businesses is the SBA advantages 7(a). To apply for a loan, you need to meet all the requirements of SBA. SBA 7(a) outlines all those businesses that are ineligible for loans which include pyramid sales, pawnshops or any business that deals through or with illegal means. The businesses that are eligible are not categorized but SBA shows concern with the purpose of the business, the circle of the dealings and the owner of the business.
However, some basic requirements for SBA are:
- The business should be “small”.
- Profitable business
- Business is confined to the U.S
- Investment of reasonable assets
- The purpose for need of loan is definite
- Business is not in debt to the U.S government
4.Documents and Paperwork:
If you’re looking for small business loan for your operating business you will be required to submit your business credit card reports and in addition to that you’ll need to provide the following:
- Personal background
- Resumes of your team and yourself which shows the required business experience
- Business plans for the next three or five years with financial statement evaluating profit and loss, the cash flow and the balance sheet
- Income tax returns for the last three years
- Legal documents including license and registration.
So, by following all the above-mentioned points you can easily learn how to apply for a business loan without getting stressed out or dropped out during the process.