When you’re establishing a business and need capital for funding, one of the first things you may think about is whether or not to get a business loan. Business loans are an excellent way to get the cash you need to launch your company while also being able to keep control of your company in the process. However, getting approved for a business loan can be difficult and challenging. There are many different factors that will affect whether or not you get approved and how much money you get if you do. Where you apply, what type of loan you apply for, your credit score, collateral, personal financial situation, and more can all have an impact on whether or not you’ll be able to get a business loan.
How to Get Approved for a Business Loan
The first thing you need to do if you want to get approved for a business loan is to make sure you’re eligible. You may be surprised by the number of people who want to get a business loan but don’t actually qualify. To start, you’ll need to be running a legitimate and established business. You may be able to get a business loan if you’re starting a new company, but you may have a harder time getting approved as you have no credit history and/or history of repayment. The term of your loan and the amount you want to borrow will also affect how easy it is to get approved. You’ll find that the larger the loan amount you ask for and the longer the term of the loan, the harder it will be to get approved.
Know the Different Types of Business Loans
There are several different types of business loans you can get approved for. Knowing which types of loans you qualify for will help narrow down your options when it comes to finding the right lender. Bigger business loans are generally broken down into three categories: secured loans, unsecured loans, and equity financing.
Check Your Credit Score and Report
Before you even begin the application process for a business loan, you’ll want to make sure you’re putting your best foot forward. One of the first things lenders will do when they look at your business loan application is to check your credit score. If your credit score is low, you may have a harder time getting approved for a business loan. If you’re applying for a term loan, your lender may even pull your credit report to see your payment history and debt load. If your credit report shows that you have a lot of debt and/or a low credit score, you may have a harder time getting approved for a business loan.
Research Which Borrowers Will Consider You
All lenders are not created equal. Some lenders are stricter with their qualification requirements than others. This is especially true when it comes to larger business loans. Before you apply for a business loan, you should research which lenders are likely to approve you. There are several free online databases and resources where you can find information on who lends to small businesses like yours. To start, you can use the Small Business Administration (SBA) Loan Lenders database. This database will match you with lenders in your area who are likely to consider you for a loan.
Collateral Matters
If you’re applying for a business loan that doesn’t require a credit check, you may be able to offer up collateral as your loan repayment guarantee. This means that if you don’t pay the loan back, your lender will take and sell your collateral to pay back your loan. The amount you’re asking for and the type of business loan you’re getting will affect how much collateral you need. For example, if you want to borrow $20,000 and offer up your car as collateral, the lender may be more likely to approve your loan. Your lender may even give you a lower interest rate or a lower monthly payment as a reward for being willing to offer up collateral. This can help you get a lower interest rate on your business loan and make paying back the loan easier.
Your Personal Financial Situation
Finally, your personal financial situation will also affect how easy it is to get approved for a business loan. If you’re applying for a term loan, lenders will look at your personal credit report. If you have bad or no credit, you may have a harder time getting approved for a business loan. You may also have a harder time getting approved if you have a low or minimum-wage income. Lenders will want to know that you have enough money to pay back a business loan. This can be difficult if you have a low income.
Conclusion
As you can see, there are a lot of factors that go into getting approved for a business loan. Even if you’re looking at smaller loans, you’ll still have to provide a lot of information and have a solid financial plan. If you want to get a business loan, you’ll need to start the process early. Most lenders have a strict application process and timeline. Getting your application in as soon as possible will help you get approved sooner and get the money you need to launch your company.