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How to Qualify For A Small Business Loan with Good & Bad Credit

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How to Qualify For A Small Business Loan with Good & Bad Credit

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What is a business loan?

Business loans are a type of financing intended to help fund the growth of small businesses. Available through banks, credit unions, and online lenders, business loans can provide lump sum financing or a line of credit. With an assortment of types of business loans available and a competitive marketplace to shop, it’s important to acquire information to help you make educated financial decisions on behalf of your business. 

How do business loans work?

A business loan is typically funded as a lump sum once the business is approved. Depending on the type of loan you choose, rates can be fixed or variable. Variable rates can change depending on the market throughout the life of the loan. Fixed rates on the other hand do not change. Fixed business loans can be easier to manage as the payment will be the same from start to finish. 

What requirements are needed for a business loan?

Requirements for a business loan can vary depending on the lender, type of the loan, and other factors. As you prepare to endure the business loan process, you can expect to find the following minimum requirements:

  • Minimum credit score (for personal and business credit scores)
  • Annual revenue 
  • Time in business
  • Debt-to-income (DTI) ratio
  • Collateral (for secured loans)
  • Personal guarantee 

Check your SMB (small-medium sized business) credit score today and learn more about how a lender views your business when it comes to approving a loan. 

How do I determine the amount of loan I need for my business?

Borrowing money, costs money. Therefore, you’ll want to borrow what you need, but not any more. Before applying for a loan determine what you need the funds for. This can help you determine how much you need to borrow. What you qualify for can impact what you can borrow as well. Both sides should be considered. Furthermore, you’ll want to ensure you can keep up with the repayment schedule while maintaining a healthy business. 

What documents do I need to provide to qualify and apply for a business loan?

Applying for a loan is one thing. Providing documentation to support the application is another thing. Documents that may be required during the approval process can include the following. 

Personal information you may be asked to prove:

  • Name
  • Address
  • Phone number
  • DOB
  • SSN

Business information you may be asked to prove:

  • Articles of incorporation
  • Business license and permits 
  • Legal agreements (such as a lease)
  • Business plan
  • Bank statements 
  • Tax returns for the most recent 3 years 
  • Current accounts receivable 
  • Balance sheet
  • Business debts 

How long does it take to qualify and get a business loan approved?

Approval times can vary depending on several factors including how quickly you provide any requested documentation. To receive personalized offers within minutes, visit mySMBscore. Prepare documentation beforehand and submit accurate information to help the process go smoother.

What are the different types of business loans available to qualify for?

There are a variety of business loans available. As you explore the various types consider the following differences:

  • Rates: Fixed vs. variable rates
  • Payments: Repayment period
  • Funding: Lump sum or line of credit
  • Type: Secured or unsecured

While there are a variety of business loan types, and sub-types too, here’s a high-level overview of some popular options:

With an SBA backed loan, the government guarantees up to 85% of your total loan. With small businesses being a staple to the economy, the government tries to find ways to support their success. To get an SBA loan, you’ll need to work with an SBA-approved lender and qualify. There are often more potential stipulations with an SBA Loan, such as what the funds can be allocated to, a personal guarantee of responsibility from the business owner, or criteria for how long a business has been in operation.

A business line of credit, or business LOC, grants flexibility to businesses to jump on opportunities as they arise. This predetermined amount can be accessed at any time up to a certain limit, similar to a credit card, and interest is only payed on the amount borrowed. 

This type of  business loan may be most helpful in a quick-fix situation, like making payroll after a major setback, or an emergency repair. These loans are typically approved quickly, but may come with higher interest rates. 

Take the first step in determining what type of business loan is right for you. Check your business’s SMBscore today!

What is the interest rate for a business loan?

Interest rates for business loans can vary. Factors that can impact interest rates include market factors as well as what your business qualifies for. Furthermore, the loan amount, repayment period, and type of loan can all impact the interest rate. So how do you know if you have received a fair business loan offer? MySMBscore can help with that. With access to a credit memo and insights as to how a lender views your business credit, you can gain an understanding of how qualified of an applicant you are. Furthermore, you can access multiple personalized loan offers at mySMBscore. There’s likely to be a trend in the offers returned which will provide even more insight as to what is competitive and what’s not. 

How much income do you need to get a business loan to qualify?

There are two ways lenders can view income; debt-to-income and annual income. Lenders can examine the gross income of a business against debt to calculate net operating income. They can also examine income alone, which may be a higher priority for businesses that carry little to no debt. Most lenders want to see that a business has at least $100,000 in annual revenue to qualify, although requirements can vary.

What is the repayment period for a business loan?

The repayment period for a business loan can vary depending on factors such as the type of loan, loan amount, lender, and what you qualify for. The shorter the loan, the less risk for the lender. Repayment periods can vary from a few months up to 25 years, but are not limited to this window. Most small business loans have a repayment period somewhere closer to the wheelhouse of 5-10 years

How can I improve my chances of qualifying and getting a business loan?

To improve your chance of getting a business loan, equip yourself with the right information. Understanding how a lender views you when applying for a loan is helpful. By doing so you can identify ways to improve your financial standing to qualify for the most competitive offer possible and or get the funding you need.

Can I get a business loan with a bad credit score?

Getting a business loan with a bad credit score is a difficult hill to climb. While backing the loan with collateral can help, it’s usually best to take action to boost your credit score. Take advantage of the mySMBscore platform to identify areas of improvement so that your business can reach its full potential and so can you.

What are the risks involved in taking out a business loan?

Business loans involve risks for the lender and the business. Here are 4 risks associated with a business loan for the business and or business owner.

#1. Loss of collateral

if the loan is backed by collateral, you risk losing the collateral in the event you default on the loan.

#2. Personal liability

To qualify for a small business loan, business owners often have to use their personal credit to get the loan. They may also have to provide a personal guarantee. This means the business owner is responsible to repay the loan even in the event the business fails.

#3. Lending costs impact profit margins

While you’re probably willing to do anything to help your business succeed, you’ll need to be mindful of the costs. Borrowing money can impact the bottom line, thus presenting risk. 

#4. Financial stress

As a business owner, a lot of things need your attention. Taking on debt can cause stress which can fog your decision making ability. Making good business decisions is critical. 

What disqualifies you from getting a business loan?

To qualify for a business loan you’ll need to meet the lender’s requirements. However, there are a few things that can disqualify your business from even being eligible for the loan. One of the main reasons businesses are disqualified, other than just not meeting the basic requirements, is operating in a certain industry. Some industries are deemed high-risk and therefore, lenders will not work with them.

Is it hard to qualify and get a small business loan?

If you are well-qualified and take the steps to properly prepare for a small business loan you can increase your chance of approval. If you don’t meet basic requirements or have credit challenges, it can complicate the process of qualifying. 

How does my credit score impact my ability to get a business loan?

When you apply for a business loan lenders can take your personal and business credit score into account. Similar to a personal loan, applicants with good credit scores are more likely to return offers. To better understand how your business credit score can impact your ability to qualify for a business loan, visit mySMBscore. With the opportunity to see your business the way lenders do you can gain a comprehensive understanding to identify areas of improvement or confidence to know that you should qualify for a competitive business loan. Plus, when you’re ready you can check business loan offers through our platform too. 

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