Getting a small business loan can often be the difference between succeeding or closing your doors.
Even strong businesses need funds to grow and expand. Loans give you the cash you need up front for major purchases at much lower rates than credit cards.
If you’re considering taking a loan for your small business, these five tips can help you secure it:
1. Build Your Credit Scores
Lenders will often look at your personal and business credit scores to determine your creditworthiness.
Credit scores can range from 300 to 850, with 850 being considered perfect. The higher your credit score, the better chance you have of getting the loan you need.
Credit scores are determined by a number of things: payment history, existing debts, types of credit currently in use, and recent inquiries to your credit.
If you already know your personal credit score is not high enough to qualify for a traditional loan, you should look into bad credit loans. These lenders look more at your ability to repay than your credit score when reviewing your application.
2. Research the Lender’s Minimum Qualifications
Qualifications for loans can vary between lenders. Some lenders will be more forgiving if you underperform in a certain area but exceed requirements in another.
However, your best shot is ensuring you meet or exceed all minimum requirements.
Research what your potential lenders require and pursue those that you feel you have the best chance of impressing.
3. Gather the Right Documents and Financial Proof
Bank statements, P&L reports, business, and personal income tax returns, and commercial lease information can help to support your application. In addition, lenders will need a photo ID, business licenses, and other supporting documents.
Some lenders may ask for a professional resume to gauge your business experience. If you don’t have much of an operating history, charting your financial projection can also be helpful.
4. Share Your Plan for the Money
Taking out a loan isn’t a decision to take lightly. Lenders want to know why you need the money and how you plan to use it.
They also want to see how you plan to repay the money. Providing them a detailed business plan can help support your cause. You should also show how your cash flow will be able to support ongoing expenses and loan repayment.
5. Provide a Form of Collateral
Some lenders don’t require collateral, while others do. In either case, it’s a good idea to offer some form of collateral to build trust and confidence with the lender.
Collateral can be a car, real estate, inventory, or equipment–anything the lender can liquidate if you default on your loan.
How Can You Use a Small Business Loan?
Business installment loan funds come with specific use cases. Violating your agreement could result in the demand to pay back the loan immediately.
Your business loan can be used for almost anything related to your business. This includes hiring new staff, moving to a new location, buying inventory, upgrading technology, making repairs, or paying off existing debts.
Be sure to check your loan terms to ensure your expenses match the loan agreement.
What if a Small Business Loan Isn’t an Option?
Not everyone will qualify for a small business loan. Credit scores, lack of collateral, and not meeting the lender’s minimum criteria can prevent you from securing the loan.
If you don’t qualify, there are several other loan types you can consider. Visit our learning center to discover other options to help you receive the funds you need to grow your business.