With all the different business loan options available today, qualifying for a loan is a possibility for almost every business owner – but it requires a more savvy approach to evaluating your options picking the loan that best suits you and your business’ situation. Lenders evaluate both your personal credit history and your business credit profile to determine your eligibility, but hopefully the following information will provide you with what you may need to prepare to apply for a business loan.
As you prepare to make a loan application, be prepared to answer questions about what you need the funds for and how you plan to make repayment. Any lender, including traditional banks and online lenders, will want to get a clear picture of your credit history, your business, and your business’ future plans. Preparation is key and you can stay one step ahead of the game by having all of the necessary documents and data at your fingertips. Every lender will have their own paperwork requirements, which you must complete to apply for a loan, and not all lenders require the same types of information, but there is some information that the majority of them will look for—including the following:
- A detailed business plan that outlines your company objectives, demonstrates your company’s sustainability, and details of how the borrowed funds will be used. You may also be asked to list some trade references to demonstrate your creditworthiness.
- Your capital business assets that a lender can use to collateralize a business loan. Traditional lenders will want specific collateral, but many online lenders will use a general lien on your business in lieu of specified collateral. Because specific collateral is not required by many online lenders to approve a business loan, otherwise healthy businesses, that might not have adequate collateral, can still access borrowed capital.
- Cash flow projections and financial statements will give lenders an idea of the financial condition of your business, your ability to make repayments, and will help them evaluate whether you are a good candidate for a small business loan. They will measure your cash expenditures against your income to determine the amount of cash flow you have available to service debt. This data will also give lenders an idea of how well your business is operating in the market place and whether you have any other forms of outstanding debt. You will likely be asked for both historic and projected cash flow statements.
- Your personal credit score and business credit profile are important parts of how your creditworthiness will be evaluated. If you are not familiar with your credit data, you can request a free copy of your credit report from the Office of Human Affairs and any of the business credit bureaus can supply you a copy of your business credit profile. your credit information is an important collection of information a lender will use to evaluate your business loan application–both personal and business. A high personal credit score (over 700) is often a requirement when borrowing from the bank
- Details of your personal income, tax returns and your insurance policies will give a lender insight into your financial health.
- Evidence of collateral—such as real estate—that can be used to secure your loan will likely be required if you apply at the bank. The lender will likely conduct a loan-to-value analysis of your proposed collateral to make sure that the value of the collateral is high enough to provide necessary security. The relationship between the funds provided by your lender and the value of the collateral is called the loan-to-value ratio. Depending on this ratio and the type of collateral offered—often inventory, equipment, property, stocks, bonds and accounts receivable, the lender may approve or decline your loan application. Lenders may look more favorably on a business loan request where the business owner has made a significant personal capital investment in the business. For example, cash contribution, retained earnings or other assets.
- Some lenders may require the professional resumes of all the principal owners of the company. This could demonstrate past business endeavors, past relationship (if any) with the lender or referrals and references from other lenders or customers along with the borrowers position and reputation within the industry
Once you have collected all your documents and have this information at your fingertips, you’ll be in a better position to answer any questions a potential lender might have and quickly submit any information your lender might need to complete your application. Your lender will then make a decision on your loan application based on a review of all of the information. The timeline of your approval can take from a week to 90 days. According to the Government of Canada, credit conditions for businesses in Canada remained good by the end of 2015 with approval rates for debt financing at 88 percent. It can be more difficult for start-ups and small businesses to qualify for funding but if you’ve been in business for at least a year, have annual revenues of at least $100,000, and otherwise have a healthy business; OnDeck may have a solution for you.