Plenty of things can help you growth your business so that it can thrive and prosper. However, the most important is money. You need it to support your daily operations and pay your employees. You can also use it to purchase equipment that can help you improve your company.
Before you apply for a small business loan, explore your options. Requirements and terms vary depending on the lender and the type of small business loan you may want to get. Each loan choice has its own set of risks, benefits, payment schedules, and criteria that determine who qualifies.
The Requirements for Small Business Loans
You have several options when it comes to the lenders. However, the most popular are:
- Credit unions
- Small Business Administration (SBA)
Some business owners also seek the help of alternative lenders, including those that operate online to help them with their funding.
As previously mentioned, the requirements differ from one lender to another. Other factors also influence what the creditor may ask from you before you get approved. Let’s take a look at the lenders and what they each require from the consumers
Small Business Loans from Banks
Banks only accept those with excellent credit rating, extensive business, and financial history, and with collateral. You’ll most likely qualify if you don’t need the money. In 2008 banks tightened their requirements, and they haven’t changed them since that time. Most of their loan are for big businesses, which is why it is difficult to obtain a loan if you’re a small business owner.
If you plan to go ahead and apply, here are the requirements that banks seek from small business loan applicants:
- Time flexibility since processing takes two weeks to two months on average
- Excellent credit score and history
- Documents to provide financial stability
- Detailed business plan
- Marketing plan
- Records of tax and bank statements
- Proof of property as collateral
Small Business Administration (SBA) Loan for Small Business Owners
SBA is a government agency that aims to help entrepreneurs get the funding they need. Unfortunately, many say the process takes too long and may even be longer than banks. It may be due to the organization not providing the funds themselves. They connect the borrower with one of their lending partners, such as a local bank.
Nevertheless, SBA has several loan products, including 504 and general purpose 7(a) loans. Most of the products cover business start-up costs, expansion, or cash flow. To qualify, the requirements are:
- Solid credit history and good personal credit score
- Wait time of 90 days or more in most cases
- Complete business plan
Credit Unions and Small Business Loans
It is easy to see why many entrepreneurs view credit unions the same with banks because these two are alike in several ways. Most of their loan products are similar to the ones that banks offer. Some requirements include:
- Good credit score
- Business plan
- Become a member of the credit union
- Processing takes about 30 to 60 days
Small Business Loans from Alternative Lenders
These lenders have plenty of funding options, such as merchant cash advance. These lenders usually have less stringent requirements than banks, or credit unions. It’s not uncommon for merchant cash advance lenders to only care about your businesses’ revenue, and not your personal credit score.
You don’t need an excellent credit rating to obtain the loan from alternative lenders. Also, processing of your application may only take a few days, which means you can get the funds fast. However, you should always make sure you are dealing with a reputable lender. The problem is that many fraudsters are around online so it is not still easy to find an alternative lender that you can trust.
Other Essential Information for Small Business Loan Requirements
Depending on the lender, some of the things that you should provide to speed up the approval procedure include:
A good to high credit score: The required rating will depend on the lender, but financial institutions always ensure they examine the credit report for both your business and personal. Often, the customer should have at least a 650 score.
Annual revenue: If you bring in $50K to $150K in annual revenues, you have a high chance of getting approved for the loan.
Income: It is not just about the business but also you as the owner. Lenders will accept your application if they know that you can meet the requirements for repaying the loan. A handful of lenders search for a borrower with a total income of at least 1.25% times more than the entire expenses of the business.
Collateral: A secured small business loan means that you should provide an asset, which can be anything from real estate, equipment, and inventory.