Getting a small business loan can be tricky. Lenders want to make sure you’re a good credit risk before they give you any money. Whether you’re going with a traditional bank loan or an alternative lender, you’ll need to have good credit and the right documentation to show that you’re in business and that you have the revenue to pay your business loan back. Let’s take a closer look at the things you need to get a small business loan.
Business Plan
A business plan shows lenders that you have a real plan for how you’re going to use the money to grow your business and that you have the ability to repay a business loan. It should include information about your annual revenue, your business’s goals and plans for financial growth, your company structure, your best employees, your products and services, your market research, and so on. These documents should prove that you have the cash flow to cover your loan repayments as well as your daily operating expenses.
Loan Proposal
Not all lenders will require a loan proposal, but some will. Whereas a business plan focuses on your business’s long-term goals and is therefore broad in scope, a loan proposal drills down the focus to the loan itself and what you plan to do with it. It should summarize your background and professional accomplishments, including qualifications that make you a better business owner. You should discuss the equity you have in your business and clearly request a specific loan amount. You should also discuss how you plan to repay the loan using the repayment terms you’ve discussed with your lender. Your financial projections should back up your repayment plan.
Good Credit
You’ll likely need to have a good personal credit score as well as a good business credit score in order to qualify for many small business loans. However, small business loans from alternative lenders are available to business owners with lower credit scores.
Take steps to repair your personal credit as needed before you apply for a small business loan. You can boost your business credit by opening lines of trade with vendors and suppliers, paying your bills early, and getting a business loan, business line of credit, or credit card.
Healthy Annual Revenue
You will need to prove to lenders that your business has healthy annual revenue in order to qualify for a small business loan. Most lenders require that you bring in a minimum annual income before they consider you for a loan or line of credit.
Financial and Business Documents
There sometimes seems to be no end to the paperwork you have to present to get a small business loan, especially from a bank or from the Small Business Administration (SBA). You will need to produce:
- Income tax returns, both business and personal
- Your business’s articles of incorporation
- Your business license
- An income statement and balance sheet
- Your driver’s license
- Bank statements, both business and personal
- A copy of your resume showing relevant business experience
- Your financial projections
- Copies of your contracts with clients
- Your commercial leases
Some lenders, particularly online lenders, won’t require this much paperwork. Some online lenders have a very streamlined application process that can get you money in just a couple of days.
Six Months to Two Years in Business
Most lenders will only give out small business loans to businesses that have been operating for at least six months. Banks and the SBA may require a business owner to have been in business for at least two years to qualify for a small business loan. If you need a loan to start a business, it’s going to be much harder to convince lenders to take a risk, but it does happen.
SBA Requirements
If you want an SBA loan, you’re going to have to meet SBA requirements. Your business must meet the SBA’s definition of a small business for your industry. Some industries, like gambling and real estate, are ineligible for SBA loans. You’ll have to be current on all your government-backed loans, including personal student loans and government-backed mortgage loans. If you’ve been late on a government-backed loan payment in the past, you may not qualify for an SBA loan. And, finally, you’ll have to be operating a for-profit business to qualify for an SBA loan.
It’s not always easy to get a small business loan, but knowing what to expect beforehand can help a lot. You’ll be more organized and better prepared to undergo the application process, so you can get your loan faster and get on with running your business.
