Most businesses will eventually take out a loan. Do you know how to qualify? Here’s what you need to know about business loan requirements.
When it comes to starting a new business, if you don’t have financing, you don’t have anything. However, it takes much more than a promising idea and a unique company to get approved for a business loan.
If you’ve never taken out a business loan before, the process can be a little intimidating. We’re here to help. Keep reading for a quick guide on business loan requirements.
Business Loan Requirements
Whether you’re a business owner looking to expand or a brand new entrepreneur looking to start the next chapter of your life, you need to take the proper steps to ensure you get the financing you need. Here’s what you need to know.
One of the most important business loan requirements is your business plan. This plan details every aspect of your future company:
- Market research and analysis in your industry
- Mission statement
- Target Audience
- Growth analysis and financial projections
- Cost projects
- Means and Methods
You need to put a lot of time and effort into your business plan, as potential lenders will use this as a primary resource to determine whether or not they want to fund you.
Official Documents Related to Your Business
Next, you’ll need to gather the various documents the lender will ask for that will help you qualify for the loan. These business loan requirements will include at least one form of identification, your tax returns from the past couple of years, proof of income (bank statements or pay stubs), your business license, etc.
To save yourself time, contact the lender ahead of time and ask for the list of documents they require to process your loan so you can start collecting early.
When applying for a new business loan, your personal credit score is an important determining factor. The bank or lender you’re working with wants to know you’re financially responsible in terms of credit. As someone looking for startup funds for a new business, the lender’s only reference is your current personal credit standing.
The credit score needed for your business loan requirements depends on how much you’re asking for, what collateral you’re laying down, any cosigners, and what lender you’re using. You can work to improve your personal credit to improve your terms, but it takes time.
It’s a well-known fact that nearly half of all small businesses fail within their first five years of operation. Banks and lenders know this and therefore, require collateral to secure any loans they give to new business owners. They need to protect their investment.
Typical collateral options include personal assets such as real estate property, vehicles, and more. If your business fails, your assets will be secure as long as you continue to make the monthly payments.
Looking for More Business Advice?
Whether you’re looking into business loan requirements for your next business project or are looking for new business ideas, you’re in the right place. Check out some of our other articles before you leave for everything business-related. Good luck and remember to keep driving toward your goals – consistency is key!