There are inherent complexities when it comes to the process of applying for a small business loan. Thankfully, there are also ways to simplify the process and eliminate some of the angst associated with trying to satisfy lender requirements. Whether you are applying for an SBA, bank or online small business loan, the information below will provide useful tips for getting the money you need to expand your business – without any unnecessary complications.
Establishing Your Personal and Business Credit Scores
If you’re seeking small business loans in Greensboro NC, you may already understand the importance of credit. However, most people only have a basic knowledge of their credit score and don’t truly understand how it affects their financial health. Your personal credit score will range from 300 to 850 and your goal should be to raise your score as high as possible. Your personal credit score, also called a FICO score, is comprised of five different factors; the amount of debt you have, your payment history, the types of credit you have, how long you’ve had credit and recent credit inquiries. As you may have guessed, your payment history is a heavily weighted factor, making up 35% of your personal credit score. Your business credit score has a range from 0 to 100. If you’re applying for an SBA loan, both your personal and business credit scores must be high.
Back in 2012, the Federal Trade Commission found that many consumers identified detrimental errors on their credit report. They also found that correcting those errors boosted the credit score of consumers 20% of the time. When embarking upon the journey of applying for a small business loan, you’ll want to get a free copy of your credit report from AnnualCreditReport.com. If you identify any errors, you can work with the three credit bureaus (Experian, TransUnion and Equifax) to resolve the problems. To address issues with your business credit report, you’ll have to contact Dun & Bradstreet, Experian and Equifax.
Meeting the Lender’s Minimum Qualifications
Once you’ve made the decision to apply for small business loans in Greensboro NC, then you might as well give it your all. In order to be considered a strong applicant, you’ll want to understand the lender’s minimum qualifications and meet them – if possible, you should try to exceed the requirements. In many cases, the minimum criteria will be related to credit scores, years in business and annual revenue. They also assess whether there are any significant issues like delinquencies or bankruptcies.
Sometimes lenders are flexible and consider your overall application, but if you’re considering an SBA loan, then you can expect more stringent requirements. The SBA also has a list of ineligible businesses, such as life insurance and real estate companies.
Compiling Important Documentation
You probably won’t be surprised to learn that lenders usually require you to produce a wide-range of documents that may include Articles of Incorporation, business licenses, income tax returns (personal and business), income statement, balance sheet, bank statements (personal and business), commercial leases and a photo of your driver’s license. Sometimes you’ll have to provide a copy of your resume in order to confirm your business and management experience – lenders what to make sure you have what it takes to succeed.
If the very thought of having to provide all of these documents feels overwhelming, you can opt for an online small business loan, since online lenders have streamlined the application process and require less documentation.
Developing a Solid Business Plan
If you don’t already have a business plan, then you’ll want to develop one. Your plan should provide a strong business narrative, along with financial projections that communicate how you intend to increase profits. Here are some of the most common elements of a strong business plan: Company overview (including products and services), industry analysis, management team, operations plan, sales and marketing strategy, and SWOT analysis (strengths, weaknesses, opportunities and threats).
There’s a good chance that you’ll have to provide collateral in the form of real estate, inventory or equipment since lenders want to make sure they have a recourse should you go out of business. If you don’t like the idea of laying your personal possessions on the line, then you might want to consider an unsecured business loan.