The application process for a Long Island small business loan is daunting. Preparation will ensure the process is much easier. Receiving your first small business loan is a milestone.
Prior to Applying
It is important to understand your funding options before applying for a Long Island small business loan. This includes being certain financing is necessary. In addition, it helps if you understand the various options available to you such as:term loans, small business loans, business credit cards, angel investments and invoice financing.
Understanding the pros and cons of the different types of loans will ensure you choose the right funding options.
Credit is king for small business loans. This is how the lenders decide if the business can be trusted with their money. A credit score represents the financial reputation of the business. Your business and personal credit scores are two of the three pillars analyzed for small business loan applications.
The Business Credit Score
Most Long Island small business owners mix their business and personal finances. The issue is this makes applying for a loan or filing taxes extremely complicated. Creating business accounts builds the credit history. It eliminates the chance of the business and personal credit scores affecting each other. Separating personal and business accounts avoids confusion and protects the business. The biggest factor in improving your business credit score is making payments in a timely fashion — and making payments early.
Personal Credit Score
Even when the business owner has separate financial accounts, lenders still consider your personal credit score. The most major factor is the payment history. A higher score is achieved by paying the bills on time. This is true for both the VantageScore and the FICO score. These range between 300 and 850. The biggest mistake business owners make is having too much personal debt. This means their credit utilization ratio IS VERY HIGH, and results in a lower credit score.
This measures the amount of debt the business / business owner has. The utilization percentage can be calculated by dividing the balance with the credit limit, then multiplying this number by 100. The utilization should be below ten percent. Personal credit is important to lenders.
Improving the Credit Score
The best way to begin is by looking at the factors used by the credit bureaus to calculate the credit score. Due to the Fair Credit Reporting Act, this is easy and free. The options for businesses include Nav and CreditSignal. Personal credit reports can be viewed from places such as Credit Karma and freecreditreport.com. Accessing your credit report is important when applying for a small business loan. This enables the individual to fix certain issues quickly. You should make a stringent effort to fix any mistakes
Any debts past due, the amount and who the money is owed to must be addressed. Contact the creditors to pay down the debt fast! Credit card debt should be reduced as low as possible.
State and federal tax liens can be placed on a payment plan by contacting the government entity involved.
If possible the debt should be paid in full. This will boost your credit score.
Balances should be below thirty percent of the available credit. Ten percent is ideal. This demonstrates the business can pay their debts without financing. The utilization rate should be low and accounts should not be closed because the debt has been paid. Lowering the amount of available credit can have a negative impact on the score.
Understanding the Offer
Chances are the small business will receive an offer when they apply for a business loan. If you have good credit and good financials, it’s likely a lender will make you an offer. What’s important after you get the offer is to see if it will work for you. Typically, that means looking at the APR of the offer, the term, and making sure it fits your business objective. It is important to understand how the offer was established and what it means. The business financials are what the lender uses to determine the best loan for each small business. This offer will include the interest rate and the APR. These will be based mainly on the credit score of the business.
How can Delancey Street help?
Delancey Street is a premier lender, based out of Long Island, that can provide you with financing options to grow the business. We have a number of financing options available, such as invoice factoring, business loans, term loans, and more.