Long Island Small Business Loans
The application process for a Long Island small business loan is daunting. Practicality and mental preparation will ensure the process is much easier. Receiving the first small business loan is a milestone for any company.
Prior to Applying
It is important to understand the options before applying for a Long Island small business loan. This includes being certain financing is necessary, 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 help ensure appropriate financing. The two basic essentials for applying are the user case and the credit.
The Credit
Credit is king for Long Island 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. The business and personal credit scores impact being offered a small business loan. They define the terms of the loan. These 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. Business credit reports are built as the company conducts business. This score is calculated a little differently. Only the payment history is considered by the PAYDEX score from Dun & Bradstreet. Collection agency data, public records and legal filings are considered by Equifaxalso and Experian. Each scoring system uses a different scale to establish the three digits. The key for all these systems is paying the bills on time.
The Personal Credit Score
Even when the Long Island business has separate financial accounts, Long Island small business loans will still consider the 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 most common mistake is too much debt because the business will be penalized. It is important to make large enough payments to keep a low balance.
Credit Utilization
This measures the revolving credit line the business is using. The penalty for a high utilization rate is higher from the VantageScore than FICO. 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 the lenders.
Improving the Credit Score
The best way to begin is by looking at the information 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 report options include Credit Karma and freecreditreport.com. Accessing the credit report is important when applying for a small business loan in long island. This enables the individual to fix certain issues quickly. The business must ensure any trades capable of boosting the business score have been reported, any accounts not belonging to the business are not included and any negativity activity already handled has been removed. All errors must be reported.
Any debts past due, the amount and who the money is owed to must be located. Contacting the creditors to pay down the debt fast is critical. A goodwill adjustment will remove a late payment from the credit report. 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 the credit score for the near future. The only way to obtain a perfect credit score is ensuring good habits permanently. This will help the business secure good rates on debts from long island small business loans to vehicle financing.
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. If possible the credit mix should be diversified. When paid on time, a new credit account or purchasing using installments will improve the score. Opening numerous accounts simultaneously will hurt the score. Monitoring services are available beginning at twenty dollars each month.
The Specific Request
The request should be specific for the long island small business loan so the lender knows exactly what the business wants and why. Creating a budget for the funds demonstrates the owner understands their business. When purchasing expensive equipment, the market price and all associated costs should be cited. The revenue the equipment will provide for the business should be projected. The numbers do not have to be exact, but this information will back up the application. When the financing requested has been justified, the chances of securing a small business loan improve greatly.
The financial statement reveals a lot about the business with one look. It is important to review the financial statements for the business for the past few years. The business accountant can prepare several different statements to help the business when applying for a loan. This includes an income statement also referred to as a profit and loss statement, a cash flow statement and a balance sheet. These statements will show the revenue or top-line and profit or bottom-line perspectives. Cash flow lenders are most concerned with the profit and net income.
The Profitability
The most important aspects regarding the financial statements for the business that impact the loan application are where the business is making money, the profitability and the primary costs. If the business is not currently profitable, a plan must be established to change this. There are several ways to establish operating leverage. This can be ordering in bulk, procuring improved rates from the suppliers or opening another location. Once the business owner understands the best way to improve their profit margin, their chances of securing a long island small business loan will become much stronger.
Preparing the Documentation
Once the business owner has analyzed their financials, credit and use case, they are mentally ready to begin the process of applying for a business loan. This knowledge will make preparing the paperwork easy. This is especially true if the business is using the simple loan application for small businesses. Despite the fact every lender has their own specific requirements, the following documents will be required by the majority of lenders. The financial statement includes a balance sheet and income statement for a minimum of two years during the businesses operations. A minimum of one year of tax returns for the business is required by most lenders. Some lenders require two years. The accountant should prepare an accounts payable and receivable statement with a full breakdown of the money owed to and owed by the business.
Understanding the Offer
Chances are the small business will receive an offer from their loan application. 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.
The APR vs the Interest Rates
The offer also includes the APR or annual percentage rate and the interest rate. The interest rate is the percentage principle for the loan amount. This is what the lender will charge for the loan. The APR is the total interest the business will pay annually including service charges and fees. A small business loan with high fees and a lower interest rate can have a higher APR than a loan with low fees and a higher interest rate. The business owner must compare all of the numbers to determine which is the best loan.