Your business can benefit from taking out a commercial loan, whether to restock your inventory, purchase assets, or cover salaries. Not only can small business financing help sustain company operations during tough times, but it can also boost your cash flow and stimulate revenue growth.
Common qualification requirements for a business loan in Santa Barbara include:
- Good Business and Personal Credit Scores
Each lender has its minimum credit score requirements. You may qualify for a commercial loan with a personal credit as low as 500 with some internet-based lenders but may need to score as high as 680 to qualify for a standard bank loan. Your business credit score matters, too. Some financing options may require a good rating of 80 to 100 based on the Dun & Bradstreet (D&B) PAYDEX credit scoring model for businesses.
- Business Earnings (Revenue/Profit)
You’ll often need to prove your ability to repay a commercial loan before approval. Therefore, your lender may ask to see your business bank statements and income tax returns to confirm your annual or even monthly revenue. As your profit and loss statements indicate, cash flow health can also help a potential lender assess your creditworthiness.
- Months/Years in Operation
The longer you’ve been in business, the higher your chance of qualifying for a business loan in Santa Barbara. Traditional lenders may require a minimum of two years in operation, while their online counterparts often approve six to one-year-old businesses for commercial loans. The type of financing can also determine the minimum time requirement. With invoice factoring, wherein you request a loan based on unpaid invoices, you may qualify with as few as three months in business.
- Low Debt-to-Income (DTI) Ratio
Your DTI is the ratio of your monthly debt divided by your gross income, and it measures your ability to take out additional credit. Keeping it low (possibly at 43% or below) increases your chances of qualifying for a business loan. On the other hand, a higher DTI increases your risk of default, and it may disqualify you from a business loan.
- Commercial Loan Security (Collateral)
You may qualify for a business loan if you have sufficient collateral, an asset that the lender can seize if you cannot pay back the debt. Collateral can be accounts receivable or the business asset you’re purchasing with the loan, such as a car, equipment, or commercial property.
- Your Industry
Borrower risks can vary widely by industry and are a financing qualification factor. Some lenders won’t approve loans for specific industries or organizations, such as nonprofits, adult entertainment, or gambling. So, your industry will play a role in your business loan approval.
- Good Business Plan
Your lender may ask to see your business plan if you’re a start up. The document should specify how you intend to use your business loan funds in Santa Barbara. Other vital details to include 5-year financial projections (income/expenses), competition/market analysis, and industry outlook. The SBA’s website provides sample business plans for inspiration.
For additional insights and resources that can help you succeed in business in Santa Barbara, please speak with our experts at Economic Development Collaborative today by calling us at 805.409.9159 or setting up a phone call appointment by CLICKING HERE.