All businesses apply for loans. Even the biggest corporations sometimes must reach out to financial institutions for working capital. Although debt isn’t always good for business, some situations call for this form of financing. Loan applications are especially crucial for small businesses.
How easy is it to get a business loan?
But are Business Loans Easy to Get?
Any loan is never easy to get, personal and business. The application process, in particular, can be lengthy and complex. Qualifications for obtaining small business loans and large business loans tend to be challenging, in the least; for companies with limited resources or organizations that haven’t been operating long enough, qualifying for business loans can be burdensome.
The difficulty in which you apply for a business loan depends on the type of loan you’re getting.
A bank loan, for instance, may not be your best option if you don’t have adequate personal or business assets to put up as collateral. A traditional business loan is rarely the easiest way for entrepreneurs to get funding or capital.
A secured loan involves business collateral, including property and other assets and the lender can get the funds if your loan is not paid out in due time. The collateral put up can increase the loan amount and reduce your rate at the bank.
Even for an unsecure debt loan, a borrower may be required to provide some assurance.
What is the Easiest Way to Get a Business Loan?
Build a Good Financial Profile
Banks and other financial institutions have a credit score requirement for most secured loans. A good credit score is 680 to 700. A higher credit rating would mean better rates; less pressure on your company to pay the debt in a short period. It’s one of the best options to knowing how to get a corporate loan.
Increasing your personal credit score is one way to boost your financial profile. BA good financial profile gives you better loan opportunities because you’ll be able to negotiate from an economic standpoint.
How do you improve your credit score?
- Pay your bills on time
- When checking your credit report, correct errors or dispute negative feedback
- Reduce credit utilization ratio; under 15 percent is the ideal percentage
- Establish credit accounts with suppliers to develop a good payment profile
Learn the Qualifications Lenders Require
Banks and other lenders use more than the credit score to evaluate your business loan application.
Before applying to get business credit you should understand the process of evaluating business applications. Lender profits depend on borrowers’ ability to repay their mortgages. They could look at many things, including cash flow, profit and expenses, as well as personal credit history and credit ratings.
Certain lending institutions can go further to request details of their finances and tax returns. This applies especially to traditional banks.
Not every lender, even banks, have the same requirements or ask for the same minimum credit score. For example, TAB Bank’s minimum credit score for a maximum of $200,000 for small business loans is 650 whereas PNC Bank is at 720 for a maximum loan of $100,000.
But different types of business loans will also call for different requirements. Your approval and payment experience will also rely on a loan that suits your business.
How to Get a Small Business Loan
Choose the right type of funding for your business
What do you need the money for and when do you need? Use these two points to determine your loan options.
The Small Business Administration guarantees loans that are provided by banks and other lenders. So SBA loans are not given by the SBA but only guaranteed. If you’re planning to expand the business and have built up a good financial profile, this type of small business loan may be a good choice.
You can borrow as much as $5 million for investing in new equipment, buying up more commercial property or establishing a new office. Although businesses needing substantial funding can turn to an SBA loan, only those with good credit standing qualify.
Merchant Cash Advances
Even entrepreneurs and small business owners with less than stellar credit rating still have an opportunity to get some cash flow going. Merchant cash advances work for:
- New entrepreneurs
- Companies with bad credit
Some companies, like Fintegra and Blursoft, can provide unsecured loans to applicants with a low credit score of 500. The amount you can borrow can get as high as over $200,000 and as low as $5,000. So it’s the ideal choice if your business needs only a short term loan.
Instead of a loan, merchant cash advances provide an advance on future revenue or sales. This means that only businesses using credit card or debit card payments may be able to apply. Be warned, though, payments will be made on the percentage of your credit and debit card sales. That percentage may well likely affect your cash flow if your sales are low.
Term Loans from Online Lenders
A term loan is one of the most common ways to finance your business. Online lenders can provide cash upfront of up to a million. If you need funding fast, this is probably the best choice since they process loans faster than traditional lenders.
But you must have good credit standing to qualify.
Invoice Factoring or Invoice financing
Both types of business loan use invoices as a kind of collateral. When you opt for invoice factoring, you’ll sell the unpaid invoices you have to get fast cash. That business lender will then collect on those unpaid invoices. Whereas invoice financing options use your unpaid invoices as collateral.
Both options provide funding quickly.
Business credit cards
If the money your business needs isn’t substantial, you could turn to a business credit card. It’s an option that’ll provide you with ongoing expenses, from entertaining clients to financing business trips. It could keep you afloat if it’s what your operations need.
But it may be expensive in the long run since extra fees apply.
Determine how much debt you can afford
Once you’ve chosen a business loan that’s right for your business, the next step is to determine how much debt you can afford. In some businesses, the funding or capital necessary may not be what the company can afford.
In the same that a borrower for a home mortgage determines if they can meet the monthly payments, your business must also know if it can do the same.
Evaluate the financial health of your business. Look at your cash flow. What is monthly revenue? How much is your business expenses monthly?
Unsecured loans may require weekly payments. So consider payment periods as well when thinking about how much debt your business can handle.
If you’re uncertain about what you can afford, consult with a financial professional. They’ll calculate the cost your business loan before you get, for instance, a business bank loan.
Never plan to acquire debt unless you’re certain you can pay it off, especially if the interest rates are sky high. If the whole process makes it easy to get a business loan, it may be too good to be true.
How to Obtain a Business Loan on Bad Credit
Small business lenders typically are open to business applications from companies with bad credit. Some financing options may also be available to commercial organizations that have filed for bankruptcy. But risky loan applications come with a hefty cost.
A small business may not be able to meet the terms of the loan. So instead of providing the financial protection it needs, it may end up shuttering.
Complete your small business application with proper documents
Different business lenders will have different processes and requirements. But for the most part, they will ask for the following documents:
- Basic business information — entity type, address, industry, founding date, etc.
- Basic personal information (owners, not just the applicant)
- Personal and business tax returns
- Business legal documents
- Business financial statements
- Business bank statements
- Personal and business credit scores
- Existing debt schedule (if it applies)
For substantial bank loans or a small business loan, it may be best to consult with a business lawyer or an accountant. This way, you’ll complete your business application in the right manner.
Getting a Business Bank Loan and Other Forms of Financing
So is it easy to get a business loan? It’s not easy but it’s also not impossible. Even for businesses dealing with poor credit, small businesses with limited time on the market and other troubled small business owner, financing through loans is available.
You’ll have options beyond the traditional business loans. These include online lenders, merchant cash advances, credit unions and other funding providers.
Business financing is rarely simple, even for a small business. You must match the needs of your company to the repayment terms, interest rates and other requirements of the lender. Once you have all the information, then and only then can you confidently choose a traditional bank over the alternative streams of financing.