7 Qualifications for Most Small Business Loans

checklist-for-a-small-business-loans

Running a business requires a certain amount to keep things operational such as meeting payroll, paying utilities, leasing premises, and many other expenses. While entrepreneurship is rewarding, keeping everything afloat is not a small feat. Furthermore, you may have plans to expand the business by adding a new product line or setting up shop in a different area. Both scenarios call for the injection of finances.

Similar to many other life situations, loans play a big role in determining the fate of small business. With that said, it’s not as if lenders are handing out business loans to every startup that needs one. They require certain qualifications for eligibility. While each financial institution is different, here are the seven business loan qualifications that most lenders will be expecting to see before approving a loan:

  • Existence for at Least One Year

Business loan providers like LendingClub want to see at least 12-months of continuous operation before approving loans. This is done to minimize their risk since a company with a proven track record is less likely to go out of business and more likely to use the money wisely.

  • Annual Sales Targets

Typically, banks will require seeing how much revenue you rack in per annum. They will require that you make a threshold between $50,000- $150,000 per year. Annual sales in this range demonstrate a healthy bottom line and the potential of your business to thrive even more.

  • Financial Statements

The bank will need a financial statement to gauge the health of your business. Yielding high revenues could be counteracted by outstanding debt and loans. Lenders will examine these and determine if your business has the capacity to pay off old and new debts, and still have sufficient cash flow.

  • Ownership of Business

Some businesses could be solo entrepreneurship ventures while others have several investors in the mix. Ownership is a vital aspect of business loan qualifications and most lenders require that you and your business associates cumulatively own at least one-fifth of the business.

  • Reasons for Borrowing

Banks will require knowing exactly how you intend to use the loan and stay within those limits. For instance, if you wish to purchase new machinery, you cannot reallocate these funds to upgrading your premises. This can be a tricky situation depending on prevailing business needs. Before applying for a loan, determine exactly what you want and prioritize this.

  • Free of Bankruptcy

Your personal credit score is of utmost importance and most lenders insist on at least 650 before agreeing to do business. They will also ask for a credit score for your business to ascertain that you indeed have the ability to pay back the money. Therefore, filing for bankruptcy will automatically disqualify you.

  • Availability of Collateral

Even the most responsible people can experience financial hardships and find themselves in a bind. Substantial revenues notwithstanding, economic upheavals could mean that your business takes a turn for the worse. Therefore, the bank will ask for collateral to safeguard itself if you are unable to repay the loan. This could be existing equipment, real estate, and other assets equivalent to the loan.

The above criteria are vital to the loan application process and they may make or break a deal. Do your research well to avoid unpleasant surprises and be ready to make a few compromises. You could seek other alternatives like microlenders if banks turn you down.



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