Small business loans are an important part of developing your business and enabling growth within your company. Whether you need a small business loan to begin your business or to take it up a notch, small business loans are a great option to finance your business journey. If you’re wondering how exactly do small business loans work, you’ve come to the right place. Here’s how to qualify for a small business loan in six steps.
1. Discover the types of small business loans
Understanding the difference between the types of small business loans available to you is a crucial step in qualifying for one.
There are many different types of small business loans options that vary depending on your particular business needs, the duration of the loan, as well as any specific terms of the loan.
Here at Spinach we offer small business loans to help your business thrive; have a look at our small business loans now and find out how we can best help your business grow to be big and strong.
2. Develop your personal and business credit score
Your personal credit score is valuable to small business lenders as they’ll want to have an indepth look into how well you handle any debt. Personal credit scores represent your ability to repay any personal borrowings. If you haven’t taken out a loan before but use services such as LayBuy, some of them also may count positively towards your credit score.
The best way to ensuring you have a good personal credit history is to pay bills on time and in full, as well as reporting any potential inaccuracies within your report.
While more developed businesses will have an established business credit score, small businesses still starting out may yet have to confirm one. Business credit scores help in determining how trustworthy a company is when handling money so it’s important to build one up.
3. Be familiar with a lender’s requirements
The minimum requirements and qualifications may vary from lender to lender so it’s important to do some thorough research into which works best for your specific needs and business plan. For example, some lenders may be flexible if you underperform in a certain area if you’ve also overperformed in another.
Here at Spinach, we have cultivated a powerful network of some of the best lenders out there, so you can rest assured that our friendly team of loan brokers will find the best option for your business.
4. Have oragnised financial and legal documents
Keeping your finances and financial reporting in order are crucial parts of being eligible for a business loan. The lender will review both your financial statements as well as your accounting records, though this varies depending on the size of the loan.
It’s important to have your personal and business income tax returns, balance sheet and income statement, as well as your personal and business bank statements among other documents ready to submit to the lender for review.
5. Have a business plan prepared to thrive
One of the most important aspects of your loan application is your business plan. Mainly, how are you going to spend the money? Having a solid business plan that goes into depth about the purpose of the loan as well as the expected increased profits can greatly enhance your likelihood of receiving a small business loan.
You want your business plant to illustrate your cash flows, specifically showing that you will have enough cash flow to be able to afford any ongoing business expenses as well as the loan payments.
The better your business plan, the more confidence the lender can have that your business will be successful, which in turn helps to increase your chances of a successful loan application.
6. Prepare sufficient collateral
Small business loans may require your business to provide collateral. If you’re unsure of what business collateral is, put simply, it’s an asset, such as equipment or real estate, that the lender can either take control of or sell in the case of you not being able to afford the loan payments. While some online lenders won’t require collateral, they may want a personal guarantee, or even a blanket lien on your business assets - which is basically collateral in another form. Each lender has it’s own rules and regulations, so always asks questions if you’re unsure as to what’s necessary.
Contact us now if you’re interested in discussing what’s the next step for you business.