As a Los Angeles small business owner, there are bound to be times when your company could benefit from a capital infusion. Perhaps you need to buy new inventory or make improvements. Or maybe you want to increase your marketing budget or hire extra employees. Whatever the reason for your growing pains, seeking a los angeles small business loan can be a scary process.
These days, business owners can work with a wide variety of financial service providers and banks when they are seeking funding for their company. It’s essential to keep in mind that the application process can vary from provider to provider. To expedite the application process, make sure that you can readily provide all required documents to the lenders. By doing so, you can avoid delays in processing.
Follow these steps to make your los angeles small business loan application process go smoothly:
Analyze your situation
Every small business situation is unique. What is your case? Why do you need financing? Are you able to raise funds without requiring a Los Angeles small business loan? Can you take on a financial partner? Are alternative financing services like angel investors, invoice factoring, or merchant cash advances a viable option to fund your company? Do your vendors offer 30-day or 60-day net payments? Explore all possibilities.
When researching possible lenders, keep in mind that ever financial services have advantages and disadvantages. Borrowers are well served to understand how their credit score and other factors can affect their ability to borrow.
Los Angeles Small Business Loan
Conventional Los Angeles small business loans and lines of credit often require that borrowers have a higher credit score or collateral to back the loan amount. Consumers get assigned a credit score. Your credit score uses several indicators to calculate this number. These indicators include your recent payment history, credit card usage, the total number, and types of accounts.
One issue that often arises with small business owners is mixing personal and business spending. It is always a best practice to keep a business account for company needs, and a personal account for personal expenditures. By doing so, you are taking the right steps to establish credit for the company independently from your personal accounts. Showing creditworthiness with both a personal and business account that includes on-time payments and responsible utilization is what lenders want to see from small business applicants.
Depending on the credit scoring used, scores range from 300 to 850 points. A score of over 700 is a good score. 800 and above is considered excellent.
If you want to increase your credit score, these are factors that could be keeping your score lower than you’d like:
Maxed out balances – It doesn’t take much to run up a credit card balance to its limit. Especially if you have the attitude that since you’ve got the credit, why deny yourself something you want or need. High balances on revolving or department issued credit cards indicate to potential lenders that credit isn’t getting used or managed responsibly.
A lot of hard inquiries – When you’re looking for new credit, it’s hard to avoid getting hard inquiries on your credit report. The downside of getting a lot of hard inquiries is it could indicate that you’re ‘ramping up’ and seeking more credit than what you can repay.
How you use your credit – The way use your credit is called credit utilization. It measures how all your available credit is getting used and gives a general financial picture of your existing responsibilities. If possible, try to keep your credit utilization low to qualify for the best offers and rates.
Improve your credit, if you have the time – Small business owners who don’t have an urgent need to get a los angeles business loan, but are keeping the idea open as an option for the future have time to improve their credit beforehand. Consumers can always get free access to the most current copy of their credit report online or by requesting a copy from the major credit reporting agencies.
After you get a copy, review all entries on the report carefully. If you find there are inaccuracies or errors on your report, work with the reporting agencies to get these items removed or corrected. The simple act of getting outdated and inaccurate information removed from your report could lift your score by many points.
Any tax liens, collection or past due accounts should get addressed immediately. Generally, the contact information of the creditors is available on your report so you can get in touch with them to make arrangements for payment.
The benefits of cleaning up your credit report now are the fact that you planning for the future. Responsible credit habits are always the best strategy for securing credit on favorable terms.
Keep accounts open – Active accounts are the backbone of every consumer’s credit account profiles. Think twice before closing accounts, even if they are dormant or paid in full. As long as these accounts are updating account status to the credit reporting agencies, they help show you’re using your credit responsibly.
Use a variety of credit types – Another way to show that you’re creditworthiness is by having a variety of credit accounts, including revolving credit cards or installment loans for vehicles or a mortgage payment. These types of accounts help consumers establish a reliable payment history across months and years.
Increase your financial fluency – Every successful business person knows that you have to understand the financials in both your personal life and business to move forward. Regularly review your business and personal bills to make sure that there are unexplained charges or fees. If you find an irregularity, contact the vendor for an explanation.
Once you’ve taken steps to improve your credit and build business credit, you can apply for a los angeles business loan with more confidence that your application will get approved with ease.
Best Small Business Loan in Los Angeles
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.