Small Business Loan Requirements: What Entrepreneurs Need to Know
Congratulations! You’ve got your business off the ground and you’re growing. Things are progressing nicely, maybe even better than you expected. With growth, however, comes the need for cash, and like hosts of entrepreneurs before you, managing cash flow can be a big challenge. You might consider applying for a small business loan to address the cash crunch, but you’ll want to be sure you educate yourself so you have the best opportunity for success.
Good Credit Is Critical for Loan Approval
Credit worthiness is a very big deal to your lender and will be a primary factor in its decision to approve your loan. Your credit score is part of this equation and helps predict the likelihood you will repay your loan, but your current job, available capital and existing assets are all important contributing factors. If you don’t have a combination of steady income and cash reserves, and your business hits a trouble spot, the likelihood of you defaulting on your loan increases greatly. Conversely, if you have solid credit and the resources to get you through some tough times, you will be much more likely to remain current on your loan payments.
The Loan Process Takes Time
Be sure to allot enough time for the application process so you don’t run out of money before your small business loan comes through. Since approval isn’t a guarantee, you will also want to allow enough time to apply to several different lenders. The amount of time it typically takes for a loan to close varies, but it is not uncommon for the process to extend beyond 60 days. There are a number of factors that will determine the exact duration, including the amount of money you are requesting, whether you have proper documentation upfront and the business practices of the lender.
Educate Yourself: Requirements Vary From Lender to Lender
There are certain items that nearly every lender will ask for during the small business loan application process: credit reports, business plans, tax documents, key management details and financial statements. Each lender is a little different though, and there could be a few unexpected requirements that you don’t want to catch you off-guard. Reach out and get answers. Do some research and come prepared.
Taking the time to understand what you need before applying for your loan could both shorten the application process and improve your odds of getting approved. Do your homework in the beginning, and it could result in a big payoff in the end.