You may need a loan to help finance your business if you’re a small business owner. However, obtaining a business loan can be challenging, especially if you need to prepare. In this blog post, we’ll discuss the six business loan requirements.
- Personal and Business Credit Scores
Your personal and business credit scores are critical factors in determining whether you will qualify for a business loan. Lenders will evaluate your personal and business credit scores to evaluate your creditworthiness. A good credit score demonstrates that you are responsible with credit and are likely to repay the loan. Generally, a personal credit score of at least 680 and a business credit score of at least 75 are required to qualify for a business loan.
- A Personal Guarantee
A personal guarantee promises that you will repay the loan if your business cannot. If you’re a small business owner, you must provide a personal guarantee to secure a loan. This means you’ll need sufficient personal assets to cover the loan amount if your business can’t repay the loan.
- Annual Revenue
Lenders will want to see that your business generates sufficient revenue to repay the loan. Most lenders require a minimum annual revenue of $50,000 to $100,000 to qualify for a business loan. Be prepared to provide detailed financial statements demonstrating your business’s income and expenses.
- Years in Business
Lenders prefer to lend to businesses that have been operating for several years. Most lenders require a minimum of two years in business to qualify for a business loan. If your business is relatively new, qualifying for a loan may be more challenging. Consider alternative financing options, such as microloans or crowdfunding, if you are not eligible for a traditional business loan.
- Business Industry and Size
Some lenders specialize in lending to specific industries or business sizes. For example, some lenders only lend to startups, while others only lend to established businesses. Research lenders that cater to your business’s industry and size.
- Business Plan, Financial Statements, and Loan Proposal
You must provide a business plan, financial statements, and a loan proposal when applying for a business loan. A business plan outlines your business’s goals, strategies, and financial projections. Financial statements provide a snapshot of your business’s financial health, including your balance sheet, income statement, and cash flow statement. A loan proposal outlines how you plan to use the loan funds and how you will repay the loan. Be sure to provide detailed and accurate information to increase your chances of getting loan approval.
Getting a business loan requires preparation and attention to detail. By meeting the six requirements outlined above, you’ll be in a better position to qualify for a loan. Remember to carefully research lenders and loan options to find the best financing option for your business’s needs.
Learn More on How to Get the Right Business Loan with Economic Development Collaborative!
If you need assistance with preparing for a business loan, the Economic Development Collaborative (EDC) can help. EDC provides one-on-one consulting services to small businesses in LA, Ventura, and Santa Barbara counties. Our team of experienced consultants can assist you with business planning, financial analysis, loan packaging, and more. Contact us today to learn more about our services and how we can help your business succeed with the right insurance coverage.