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Delancey Street is a premier small business lender, based out of NYC, that has helped broker 100's of millions in business loans. They are a pro, at making sure you get all of your financing needs satisfied.
- Over $200 million in funding secured
- Can handle low risk credit
- Handles all industries
- Handles high risk and low risk loans
Preparing for a Small Business Loan Application
Small business loans can be a significant milestone for businesses planning to start or expand. The loan application process can be challenging, but with adequate preparation, it can be easy and stress-free. In this article, we will explore the things you need to consider before starting your small business loan application.
Understand Your Small Business Loan Options
Before you start your small business loan application, it is crucial to understand the financing options available. Common financing options include angel investments, business credit cards, invoice financing or factoring, and small business loans. Understanding each option’s advantages and limitations will help you decide what works best for your business. Moreover, you should evaluate whether a term loan is an ideal fit for your sector and stage of growth.
Your Use Case and Credit Score
It is critical to have a firm grasp of two essential things before taking a small business loan: your use case and your credit score. Knowing these two essentials will help you prepare adequately and increase the chances of a successful small business loan application. By having a clear idea of how you intend to use the loan, you can identify potential lenders and customize the loan requirements.
Analyze Your Credit and Business Credit Score
Your credit score plays a vital role when applying for a small business loan. It indicates your financial reputation as both an individual and a business owner. Therefore, small business lenders need to be confident that they can trust you with their money. A good personal credit score improves your chances of securing a small business loan for your business.
Business owners are highly encouraged to separate personal accounts from business accounts immediately they launch their business to avoid mixing finances. Additionally, establishing business accounts as early as possible helps build a favorable credit history for your business while preventing personal credit issues from affecting your business’ credit score.
Different companies calculate scores differently and may consider payment history, public records, legal filings, and collection agency data. It is advisable to pay your bills on time always, primarily since late payments and errors stay on your credit report until they get disputed.
Enhance Your Credit Score Before Applying for a Loan
Accessing your credit report will help you better understand how to raise your business and personal credit scores. You can check your credit reports on websites such as NAV or CreditSignal, which provide necessary information about potential mistakes and allow you to monitor your credit score regularly.
One of the best ways to enhance your credit score is by diversifying your credit mix. By opening a credit account, investing in a car or home, you can increase your score over time. Additionally, a credit monitoring service may also help you keep track of your credit report and alert you of any changes.
Make Specific Requests
It is critical to know precisely what you want and why when applying for a small business loan. Creating a budget estimate detailing all the things you intend to purchase using the funds and their projected revenue showcases an understanding of your venture. Lenders are more likely to approve loan applications from businesses that understand their needs, know what they require from the loan, and can justify their expenses.
Study Your Business Financial Statements
Lenders evaluate a business’s financial statements to assess its risks, growth opportunities, and profitability. Analyzing your financial statements shows how prepared you are for a small business loan application. Key financial statements to prepare include balance sheets, income statements, and cash flow statements.
Prepare Your Documentation
Since lenders have different requirements, it is essential to prepare adequately and find what documents you need. Common documentation required includes tax returns, accounts receivable and payable, and financial statements. Additionally, you must also be aware of your offer, which includes factors such as interest rates and annual percentage rates (APR). The interest rate and APR determine the total expense of the loan and depend mainly on your credit score.
Conclusion
In conclusion, preparing for a small business loan application can be overwhelming, but it does not have to be stressful. You need to understand your options, analyze your credit score and business financial statements, create specific requests, and prepare adequate documentation to increase the chances of a successful application. By doing this, you showcase your understanding of your business’s needs and the market. With proper preparation, achieving your dream of starting or expanding your business through a small business loan becomes much more manageable, and you will be ready to begin your entrepreneurial journey with confidence.
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