Small business loans may be easier to get than ever before. That borrowing environment is thanks in large part to online lenders and alternative lending options. Easier does not necessarily mean easy, and there are four things you should consider why applying for your loan.
1. Personal Credit Score
Many new entrepreneurs make the mistake of thinking that their business credit score is distinct from their personal credit score, but personal credit matters. The reason for this is that your business credit is likely not established and so the bank or other financial institution has to base that decision on something. The Small Business Association requires a score of 650, and many other lenders want a score of 720 or better. If you are below these marks, then you should probably avoid applying now and instead focus on strengthening your score.
2. Business Plan
You must have a clear plan for your business, and you must be able to articulate that plan to a potential lender. Even if you have stellar credit, you aren’t likely to get a business loan if lenders believe that your business plan isn’t feasible. Banks will want to know how you plan to use the money, how you will repay the loan and how much growth you expect. A bank will also want to know what your strategy is if the business fails and you cannot repay the loan.
3. Questions You Should Expect
Perhaps the biggest mistake business loan applicants make is not being prepared for the questions that a loan agent is likely to ask. There are many resources available through the SBA and other organizations that will help you prepare for these questions. You will be in a much better position if you have strong answers for the questions presented. Applicants should also come prepared with licenses, tax returns, financial statements and so on and so forth.
4. Lender Fit
Lenders can vary considerably from one to the next. You should seek out banks and other lenders that are particularly well-suited to meet the financial needs of your particular business. Your lender can actually be a great resource. It wants you to succeed, and it is beneficial if the lender has experience in your industry. Marketplaces are an intriguing option because they let you access multiple lenders that are a good fit with just one application. Additionally, preapplications can let you dip your toe in the water while avoiding that hard credit pull.
Getting a small business loan can be a challenging process, but you’ll avoid most of the common pitfalls if you heed the above advice. Seeking professional guidance is a strong option as well. In addition, the Small Business Association can provide invaluable resources and perhaps even back your loan.