When it comes to making our businesses run smoothly we often rely on business loans. These can be in the form of a grant offered by the Federal government or a loan that is offered by a financial institution; including banks, or credit unions. When applying for a small business loan there are a few qualifications one must meet before getting approved. It is best to be sure that everything is in order before applying.
Some of the qualifications before applying are; the business must have been in existence for longer than 1-2 years varying depending on location. In addition to that they must be able to show their revenue over the last year to 2 years. This will show that the business has the ability to make money.
Another qualification maybe that the financial institution may need to run a credit check on the business or its owners. This is standard, they are simply interested in whether or not the loan can be or will be paid back. The companies owner and the financial record of the company is what goes in and what comes back are just as important in securing the loan. Below are some of the other qualifications of a small business loan.
Character: The bank or financial institution will look into the business credit score of the person or persons applying for the loan. This will help them to determine whether or not to trust that their loan will be paid back. They will look at things like, character, education, and experience in the field.
Collateral: They will look to see if the company has anything worth the loan amount in the event that the money can not be repaid. At this time they may look at the company its self as collateral for the loan.
Capacity: Does the company have the capacity to pay the loan back. Determining the current revenue and cash flow of the business in case they need alternate courses of action in order to repay the loan. When it comes to business loans it is important to know what the risk their putting the company through before applying for the loan.
Capital: The financial institution will review the asking amount and also review the owners risk in the capital raised. After all if they will not invest in their own company why should the financial institution. The amount of investment the owner takes on plays a large part in the willingness of a financial institution putting up the funds, or in other words, providing the capital.
When it comes to requesting loans for a small business and taking the request to other financial institutions the better the companies credit, investments, and net worth the better the chance they will get the loan. Understanding what they are looking for before applying will give you the greatest opportunity to secure the loan needed for your small business. Small business loans are important tools to any up and coming business but it is equally important to show them why they should invest their hard earned money before applying.