After the recession in 2007, the market of lenders has got through many changes. Earlier, a local bank was probably your only lender. Banks are still the most widespread business loan lenders. But today their requirements are high so only the businesses with profitable and exceptional ideas have a chance to get approved.
Loan lending companies have become a good alternative to traditional lending. Such services offer a wide range of business loan services that can help companies increase their profit.
Whether you think about taking a business loan from a bank or from an alternative lender, there are some basic requirements common you must know.
There are three main questions lenders ask you before giving a business loan:
- What for are you taking a business loan?
- Can you afford it?
- Will you be able to repay it?
There is every likelihood, that business loan lenders will ask for the documents, which prove your financial capacity. Let us go through them.
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Bank Statements
Business loan lenders always tend to analyze the applicant’s bank statement. They need to check whether you are able to afford a loan and repay it together with the interest rate.
They also check it to see how the entrepreneur manages the company’s cash flow. One can make money good but administer them badly. Some loan companies may review a bank balance to see whether you have enough money to execute business operations and repay a business loan.
Usually, lenders ask for bank statements for 2-years period. It can be problematic for upstarting companies. The best solution would be to show the bank statement and add other required financial documents.
Balance Sheet
A balance sheet is an indicator of the financial health of your business. This document is required to see the way you manage the company’s liabilities and assets.
The balance sheet is a snapshot of your business’s financial health. Those documents are the basic business loan requirements, even if you apply for term business loans with Personal Money Service. They demonstrate how the enterprise functions, whether the financials are in good standing or not. Lenders want to be sure that you have enough assets to return the business loan.
Profit & Loss Statements
These statements can be also called revenue statements, income statements or P&Ls. They show where your funds come from and go to. It is a guarantee that cash flow is stable and your company can survive hard times and repay the business loan.
Usually, lenders require a year-to-date revenue statement, updated within the last 60 days.
Personal & Business Tax Returns
It may seem strange that tax returns are required for getting the business loan. The lenders demand it to make sure you are a responsible owner, who manages his finances wisely. It is better to prepare personal & business tax returns in advance.
Time in Business
If you apply for a big business loan, the long time in business is an important factor. If you are in business for years, it shows you can survive tough times. The establishment survival study from the U.S. Bureau of Labor Statistics shows that about half of all new businesses survive five years or more.
In case your company is new, do not be surprised if a lender doesn’t want to give you a business loan.
Personal Credit Score
Why do you need a personal credit score when applying for a business loan for your company? It is actually quite important. You are the person, who is in charge of loan repayment. And if you are responsible for your personal finances, you will probably be responsible for the business ones.
High credit score means more chances to get the loan. It is good when your credit score is higher than 600, troublesome when it is less than 600 and perfect when it is plus 700.
Use of the Loan
A lender has to know how you want to use the loan. They want to be sure that collaboration with you will make sense. It will help them plan out your debt.
So, business loan requirements depend on the desired loan and the size of your company. Remember that traditional banks have more requirements than the alternative loan providers but it is necessary to be careful before and when applying for financial support.