Want to start your own business but don’t have enough funds? You need a Business Loan. But how do you get one? If you’re wondering how to get a business loan from a bank, there are certain things you need to consider before applying for one.
This article will explain the qualification measures and requirements banks take when considering applications for business loans, so you can be sure you meet their standards before even filling out an application.
The sooner you figure out whether or not your business idea is viable, the sooner you can apply for the money you need to make it happen.
Understanding bank loan eligibility
Banks will typically review your personal credit history, including your debt-to-income ratio, credit card utilization and other factors when considering you for a business loan.
They will also look at whether or not you have business-related assets such as a business checking account. After all, it makes sense that an established business would have these things already in place.
Who qualifies for a business loan?
You may be surprised to learn that your business can qualify for a loan with no assets or collateral, other than a good idea. The amount of money you’ll be able to borrow, however, will vary depending on how you’re planning to use it (and what collateral—if any—you have).
For example, many banks offer a variety of unsecured business loans. Secured business loans are for bigger investments, like equipment or vehicles.
In addition to basic qualifications (like age and income), potential investors will also look at your credit score and credit history when deciding whether or not to give you money.
Down payment requirement
Most banks require a 20 per cent down payment on loans of $50,000 or more. This ensures that you have some skin in the game and will take good care of your investment.
They also want to make sure that you can handle making monthly payments for the next 10-15 years.
There are many qualification criteria required to get business loans from a bank:
1) You must be at least 18 years old
2) Your company must be incorporated as an LLC, S-Corp., or C-Corp.
3) You must have at least one year of operating history (or they may ask for projections if less than one year). They will also look at your company’s credit rating and determine what percentage of your income is debt-based vs equity-based.
A credit score in perspective
The first step in getting a business loan is to consider your credit score. Though there are many other factors involved, it is essential to have a good credit score if you want to qualify for a loan with lower interest rates. In fact, your application will be denied if you have bad credit and can’t come up with collateral security such as property.
Cash flow is essential
your business will grind to a halt if you don’t have enough cash flow. Most people qualify for loans based on their personal income. Banks will look at your business history, income, assets and credit to determine whether or not they are willing to provide you with a loan. In order to qualify for a loan, you must have a steady income (as an employee) or growing revenues in your business.
The bank’s role in underwriting
If you’ve chosen to ask a bank for a business loan, then it’s likely that you’ve already had an initial discussion with someone from that organization.
That person is likely to have been from one of two departments: commercial lending or small business banking. These are specialists who deal exclusively with business customers and loans on a daily basis.
What you can do to get approved faster
Getting approved for a business loan can seem like a major headache. Banks require business loans to be backed by tangible assets or income, so if you don’t have savings to put toward your loan, or if you aren’t an established company yet, it may be hard to qualify.
But with a little research and effort, you can give yourself a better chance of getting approved.