Small business loans are easier to qualify for if you are well prepared. These are very essential aspects that determine whether you receive the business loans. There are several things to be ensured under each of these factors to ensure your qualification. If you have a clear idea regarding the same, it would save a lot of your time and effort. Below is a discussion on the essential factors that determine your qualification for Small business loans.
Build Personal and Business Credit Scores
The personal credit score lies between 300 and 850. He higher the credit score, better your chances of qualifying. It is a reflection of your ability to pay back the personal debts like mortgage, car loans, and credit cards. The FICO score which is used to take most lending decisions is based on five important factors like payment history (35% of the score), money owed on credit cards and other debt (30% of the score), the period of carrying a credit (15%), types of credits availed(10%), recent credit inquiries (10%).
If you pay your bills on time, it will help you build a good credit score. However, there are instances of the wrong credit report which could make your efforts useless. Note that 4 out of 5 customers who filed a report against faulty credit report succeeded.
Understand the Lender’s Minimum Qualifications and Requirements
If you meet the requirements and minimum qualification criteria of the lender, you will be a strong contender for the loan. Some lenders allow concessions in the criteria. For instance, if you are underperforming in an area and overperforming a different area, you may stand a chance to get the loan. Note that they always prefer to lend to someone who exceeds all their minimum requirements.
Produce Financial and Legal Documents
Banks and other lenders always request you to produce several legal and financial documents while you apply. This may include the following:
- Income statement and Balance sheet
- Business and Personal income tax returns
- business and personal bank statements
- A picture of the driver’s license
- Business licenses
- Articles of incorporation
- Commercial leases
- A resume that showcases adequate business and management experience.
- Financial projections
Getting these required documents may be time-consuming, but it will not matter if you are looking for a long-term business loan to finance major investments. If you are looking for a faster source of money, online lenders are a better alternative.
The above factors will ensure that you are in a good position to qualify for a small business loans.