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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
Tips for Getting Your First Small Business Loan
Having a groundbreaking business idea is wonderful, but without money, it will never come to fruition. As a business owner, getting your first small business loan will be one of the most memorable accomplishments of your life. The journey of looking for funding and filling out the loan application process will help business owners gain experience and grow their businesses. It’s important to bear in mind that wisdom, a positive attitude, and focus will help you get your business off the ground.
Regrettably, some aspiring entrepreneurs give up on their aspirations before they can see them become a reality. Therefore, it’s essential for prospective business owners to stay focused and motivated throughout the loan application process. Before you begin the loan application process, you must first visualize the procedure of starting a new business. And it all begins with obtaining a small business loan. This article will provide you with everything you need to reduce stress while seeking financing for your business.
Before You Fill Out the Application
It’s critical to acquaint yourself with your options before filling out a small business loan application. Consider whether you truly require funding. If so, you may need to consider taking out a term loan, which might be the best choice based on the industry you’re in and the growth stage of your business.
There are various types of small business loans to choose from, including angel investment, invoice financing, business credit cards, factoring, and small business loans. It’s up to you to assess the pros and cons of each loan option. This will assist you in locating financing that is appropriate for your business venture. Once you’re prepared to enter the world of small business loans, you’ll need to have a firm grip on your credit and your case. When you have complete control over these two things, you’ll be able to fill out a small business loan application easily.
Take a Close Look at Your Credit
As the saying goes, “Credit is king.” Your credit history will play a significant role in obtaining a small business loan. If you notice someone with a poor reputation for repaying loans or a stranger on the street, would you lend them money? Lenders want to know if they can trust applicants when it comes to their money. They will promptly reject your loan application if they believe you are a risk. In short, lenders evaluate your credit score to determine whether you are eligible for a small business loan.
Your personal and business credit scores will determine whether a lender will provide you funding for your small business. Additionally, your credit scores will influence the conditions attached to your small business loan. However, other factors that will be taken into consideration are your ability to explain your loan use basis and how you plan to generate revenue.
Your Business Credit Score
Small business owners frequently make the mistake of mingling their personal and business finances, leading to troubles when filing their taxes and during the process of applying for a small business loan. Before submitting a small business loan application, you should open a business account. This will enable you to establish a solid credit background, as well as protecting your business credit score from personal issues.
Your business credit report is built every time you conduct business. For example, Equifax and Experian examine collection agency data, public records, and legal filings, whereas Dun & Bradstreet PAYDEX score concentrates on your payment history. Each entity uses its method to calculate your credit score using three digits.
It’s essential to know the importance of paying your bills on time. Paying your bills on time is critical to maintaining a good business credit score.
Your Personal Credit Score
Separating your personal and business affairs is the first step to getting approved for a small business loan. Lenders will scrutinize your personal credit score before granting approval since they are not interested in giving loans to individuals who don’t pay their bills on time. Small business loan lenders are only interested in dealing with applicants who have a good credit score.
Your payment history determines your personal credit score, and it includes your history of payments over time. Higher credit scores improve the chances of receiving approval for a small business loan. The FICO score and Vantage score range from 300 to 850, with a higher credit score increasing your chance of getting approved for the loan.
Here are several things that can lower your credit scores (both personal and business):
Outstanding Balance
Several consumers are unaware that their credit score suffers as a result of carrying significant debt. Paying more than the minimum balance may assist you in paying off the debt faster.
Lack of a Clear Utilization Understanding
Credit utilization is designed to determine the amount of your current revolving credit limit. Vantage Score will rate you negatively if you have an exceptionally high credit utilization rate.
The FICO score is a bit more lenient. To calculate your utilization rate, divide your balance by your credit limit and multiply it by 100. Your utilization should be below 10% since lenders frown upon applications with a high utilization rate.
How to Raise Your Credit Score before Applying for a Business Loan
You must carefully evaluate the information credit bureaus use to measure your creditworthiness. According to the Fair Credit Reporting Act, individuals have free access to their credit reports. You can obtain free access to your personal credit report by visiting AnnualCreditReport.com, Credit Karma, and Freecreditreport.com, while Nav and CreditSignal provide access to your business credit report.
Once you’ve accessed your credit reports, there are a few steps to take:
Look for Errors
Examine your reports for errors. They may have adverse consequences on your credit scores. For instance, another person’s account may be on your report. You should also address negative comments on your report. Removing them will result in an increase in your credit score.
Take Care of Tax Liens
Do you have tax liens on your credit record? If that’s the case, make sure to pay them off. You may be put on a payment plan if you cannot pay them back at once.
Look for Past-Due Debts
Contact your creditors and establish a payment arrangement with them. Inquire as to whether the listing will be withdrawn after the debt is paid off. Additionally, aim to reduce your credit card debt.
Checking your credit report and clarifying suspected issues will enhance your credit score, enabling you to obtain small business loans and automobile loans with generous terms. Let’s look at a few more tips that can help you raise your credit score.
Diversify Your Credit Mix
Purchase something that necessitates making monthly payments, such as a house or car. However, opening many accounts simultaneously may result in a significant decrease in your credit score. Opening several accounts too often would indicate to lenders that you’re desperate, and they are not interested in giving loans to persons who apply frantically.
Use a Credit Monitoring Service
When monitoring your credit score, use a credit monitoring service. They can also assist you in determining whether you should enter into business with specific companies. Credit monitoring services can cost as low as $20 per month.
Make Your Request Simple and Specific
Keep it straightforward when applying for a small business loan. You must be aware of what you want before approaching a lender. You should also know how much money you need to start your business. Presenting the lender with a written budget or proposal will increase the likelihood of obtaining approval for the loan. Your budget must detail how the funds will be used and how much money your business will generate.
Analyzing Your Financial Statements
Your financial statements reflect your business activities. Carefully analyze your financial statements from the last few years. Consult your accountant to prepare your balance sheet, income statement, and cash flow statement.
Your financial statements will help you answer the following questions:
1. Is your business profitable?
2. What are your primary expenses?
3. Where are you earning a profit?
Organizing Your Documentation
At this point, you’ve evaluated your credit score, financials, and case utilization. Therefore, you’re ready to request for a small business loan. Several small business loan lenders will request your tax returns and financial statements. They may also ask you to submit accounts payable and accounts receivable reports as well.
Interpreting Your Offer
If you meet the loan eligibility criteria, the lender will provide a proposal. They’ll consider your business’s financials figures to develop terms for the loan, including repayment timeline, interest rates, APR, collateral requirements, and other factors that could influence the loan’s overall expense.
Acquiring a small business loan can be intimidating for anyone. Taking heed of the tips mentioned in this article will increase your chance of approval, but persistence is key. Remember to maintain a positive attitude and remain focused on your goal of starting a small business, and most importantly, understand that lowering stress levels during the application process will not only increase your chances of success, but it will also make it an enjoyable experience.
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