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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
Important Facts to Know When Applying for a Small Business Loan
Getting your hands on any kind of loan is exciting, but applying for a small business loan is a big deal. This can be an amazing opportunity that comes with excitement concerning the start of something new. As much as this application process could stand as one milestone in its own right, being adequately prepared for it plays a crucial role. It has always been said that appearance is everything, and this saying comes in handy when dealing with small business loans and the application process. Being completely ready with all your financial records and essential documents is key to getting the small business loan you desire. To make your application process run smoothly, here are some tips to get you ready.
Know Your Financial Needs
Before you finish up your small business loan application, go over your financial needs and check out all possible options. You might believe that a small business loan is quite ideal for your business needs, but it may not actually suit all your financial necessities. Instead, there might be other better options worth checking into, such as business credit cards, angel investors, private investors, lines of credit or even invoice financing. After laying out each available option, carefully assess the pros and cons associated with each option. This evaluation will guide you to pick the best financial solution suited both for your short-term and long-term business growth.
Know Your Credit Score
Your credit score matters, regardless of what type of financing you choose. The potential creditors know near to nothing about you; therefore, they will use your credit history to determine if awarding you with the requested amount is worth the risk. Fortunately, you have the chance to access free annual credit report from sources like Credit Karma, freecreditreport.com or Annual Credit Report.com. Acquire your credit report beforehand so that you are aware of how likely you are to get the amount required.
Business Credit vs. Personal Credit Scores
Most small business owners make the mistake of mixing their business finances with their personal finances. Doing so can cause significant damages both when applying for credit and even when filing for taxes. It is best to establish separate business accounts right off the bat and keep them away from your personal accounts. This will ensure that your business and personal credit scores remain independent, and you obtain adequate funding where needed. Different companies calculate business credit scores differently despite using three-digit scores. Equifax and Experian integrate public records into their calculations, but Dun & Bradstreet PAYDEX only uses payment history, so ensure that you always pay up on or before time. Nav and CreditSignal are two sources through which you can get copies of the performance of your business credit scores.
Even if you have excellent business credit scores, poor personal credit scores could lead to denial of your small business loan application. Personal credit scores range typically between 300-850, and the higher your credit score, the better your chances of being approved for the loan. Here are a few factors that affect your personal credit scores, and they include payment history, recent inquiries into your credit, length of credit history, type of accounts, and utilization. You may be subject to a red flag if there are recent inquiries made into your credit status indicating that you are seeking credit elsewhere. Lenders prefer seeing an array of credit types, like credit cards, mortgages, and consumer loans but highly emphasize prompt payments and low credit card balances.
Improving Credit Scores Before Applying for Loan
After receiving your personal and business credit scores, take a detailed look to determine areas that need improvement. Such mistakes can occur, such as erroneous accounts listed as unpaid or wrong balance amounts, unpaid accounts, tax liens or judgments, which might have a harmful impact on your credit score over several years. Correct these errors as soon as possible since removing them restores your original credit score. Improving your scores does not happen overnight, but certain practices can help you acquire a good score in the future, whether you’re applying for a small business loan or car loan; they include keeping the utilization rate down, considering using various types of credit, and exercising strict financial discipline. Utilize a credit monitoring service to track and manage your credit score effectively.
Know Your Business Requirements
When seeking a potential lender for a small business loan, it is vital that you have done an adequate amount of research and are aware of what you need in terms of monetary value. The lender requires a quick assurance that you know your stuff and are straightforward regarding your financial requirements. Make a business proposal containing details of your procurement procedure when asking for money, like how you plan to spend the loan proceeds. It is best to elaborate on how much profit and loss the business anticipates and showing the creditor a proposed budget since it enables them to determine the amount of revenue expected.
Get Financial Documentation in Order
Your financial documentation could be just as vital as your credit scores when applying for a small business loan. If you have an accountant, request them to prepare you a balance sheet, cash flow, and profit and loss statement since these form guiding points in obtaining essential credit. These documents answer relevant financial queries such as what your, revenue, expenses, or profits will look like over a particular period. Those starting out as small business owners will have most of their documentation in the form proposals and projections, which lenders tend to understand. For those who already have a small business, additional documentation that proves your success up to that point will come in handy, such as providing at least one year tax returns, accounts payable, and receivable forms portraying your business incoming and outgoing money.
Know What You’re Being Offered
After submitting your application and all financial documentation required, the lender now sits down to go through it all and make an offer based on their conclusion. Their proposal will be dependent on your business and financial requirements, and they will determine which offer best suits you. The loan proposal includes essential details like the interest rate and Annual Percentage Rate (APR), both of which are majorly based on your credit score. Though most people tend to understand that an interest rate is the amount payable on a loan, APR is distinct from this. The APR takes into account not only the yearly interest accrued but also the amount required to cater for services charges and other fees. Therefore, when reviewing your paperwork, remember to focus on the final figures as well since some loans might have high-interest rates but reduced fees compared to others with lower interest rates.
With regards to applying for small business loans. Being completely prepared for the application process can increase overall chances of success. Ensure all essential documentation has been prepared beforehand, and your credit scores are in check to avoid any last-minute hiccups.
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