Applying for a business loan is different than applying for a mortgage or auto loan. There are usually a few more steps and the guidelines are a little tighter when compared to personal loans. Here are some tips with it comes to applying for a business loan.
GOOD CREDIT SCORE
One of the main factors that lenders take into consideration when deciding whether or not to approve your loan is your credit score. A credit score indicates to a potential lender how likely you are to pay back the loan in a timely manner. As a business owner, you have your own personal credit score, which ranges from 300 to 850, and a business credit score, which ranges from 0-100. As a small business owner, there’s a chance that both credit scores will be needed for the loan application process. If your business isn’t well established yet, they may just use your personal score. The length of time your business has been open is also taken into consideration.
HAVE A PLAN
Before applying for any loans, you need to figure out exactly how this money will be used to help benefit your business. Will it be used to start a business? Pay for expenses? Expand your business. Pinpointing the reason will help you select a financial institution. For example, a big bank may not loan money for a start-up while a credit union would. Pick what will work best for you and your business.
When you apply for a mortgage, the house is the collateral. When applying for a business loan, you may need to provide a form of collateral in the case that you aren’t able to make payments. For a business loan, this can be work equipment, real estate, etc. It has to be something that can be seized and sold in the event that you no longer can make payments or your business closes.
When applying for a loan, there are certain financial and legal documents that you’ll need. This may include: tax returns, bank statements, identification, licenses, leases, etc. Speak to the lender beforehand and find out exactly what you’ll need. Asking questions upfront will help make the process run smoother and simpler.
Disclaimer: the information provided in this article is meant for educational purposes and not as business advice. For specific questions regarding your business or applying for loans, reach out to a member of our Business Services team at (801) 260-7600 ext. 5280.