The best way to qualify for a small business loan is to prepare in advance to satisfy all of the requirements of the lender. While it might seem like a masterful undertaking in the beginning, the reality is quite the opposite; you just need to take one step at a time until you achieve your goal.
Regardless of whether you are thinking about obtaining an SBA loan or a small business loan that you can obtain online, understanding the requirements can serve as guide throughout the process. Below are details that you should know about qualifying for small business loans in Los Angeles that can help you grow your business.
Improving Your Credit Scores
As you have probably guessed, one of the key considerations involved in qualifying for a small business loan is your credit score, also known as your FICO score. Your credit score is a number between 300 and 850 that can determine rates and terms of loans. It can also determine whether your loan will be approved. There are five different factors involved in determining your credit score, which includes your payment history, amount of debt, length of time you have had credit, types of credit and recent credit inquiries.
The information gathered about your personal credit score is obtained from three credit bureaus, including Equifax, Experian and TransUnion. However, the three credit bureaus used to assess your business credit are Dun & Bradstreet, Experian and Equifax. The business credit sore is a number from 0 to 100. One thing that you should keep in mind is that there are often errors on credit reports. Fortunately, you can obtain a free copy of your credit report from AnnualCreditReport.com to assess the accuracy of the information listed. A study by the Federal Trade Commission (FTC) found that resolving errors on your credit report can boost your score by 20 percent.
Understanding the Lender’s Requirements
Without a doubt, your priority should be to become a strong applicant, which will require you to understand and satisfy the lender’s requirements. Each lending institution will have their own criteria, so it’s important to research the requirements for each one you’re considering. For example, if you want to pursue a loan from the SBA, you should have a high credit score without any defaults. On the other hand, if you decide to apply for an online loan, you’ll find that the guidelines are far less stringent.
Compiling Required Documentation
You probably won’t be surprised to know that the loan process for obtaining small business loans in Los Angeles requires you to compile and provide important documentation, such as bank statements, Articles of Incorporation, income tax returns, driver’s license and a business license, to name a few. You may also be required to provide your resume in order to demonstrate your qualifications, especially as it relates to your business and management experience. How much information you have to provide will depend on the requirements of the lending institution.
Providing a Thorough Business Plan
As part of the loan approval process, you will probably need to provide a business plan, which will be used to understand how you intend to increase profits. This is important for ensuring your ability to repay the loan. The components of your business plan should typically include the following: company description, products and/or services provided, marketing plan, management team, industry analysis, operations plan and SWOT analysis, which details your knowledge of the company’s strengths, weaknesses, opportunities and threats.
Qualifying for many small business loans requires you to provide collateral, which can be seized if for some reason you are unable to repay the loan. The collateral provided will depend on the requirements of the lender, which varies for each entity. If you are applying for an SBA loan, then a personal guarantee from each business owner of 20 percent or more may be required. The goal is to ensure your personal credit is on the line as opposed to just your business credit.