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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 Small Business Loans: How to Secure Funding
For small businesses, getting a loan can be an intimidating process. However, with practicality and mental preparation, it is easier than most believe. Receiving funding is a significant milestone that presents the business with the chance for growth and expansion. Prior to applying for a small business loan, businesses must understand their options which include term loans, business credit cards, angel investments, and invoice financing. Each loan option has its pros and cons, and having an understanding of these alternatives will help the business owners secure appropriate financing.
Prioritize your Credit Score
Credit score is the most crucial factor in securing a small business loan. The creditworthiness of a business is established by lenders to ensure they are not taking any unnecessary risk while lending money. The credit score represents the financial reputation of a business and plays a vital role in obtaining a loan. Both the personal and business credit scores impact being offered a loan, define the terms of the loan, and are two of the three pillars analyzed while evaluating small business loan applications.
Understanding Business Credit Score
Most business owners blend business and personal finances, making it difficult when applying for a loan or filing taxes. Establishing separate accounts builds up the business’s credit history and eliminates the chance for personal credit scores to impact each other. Separating personal and business accounts avoids confusion and ultimately protects the business. As the company conducts business, the credit report starts building up. This report is calculated differently with different scales by multiple reporting agencies which look at aspects like payment history (considered only by D&B’s PAYDEX score), collection agency data along with public records and legal filings, including Equifax and Experian. Timely payments enhance credit scores for both personal and business accounts.
Personal Credit Score
Even with appropriate separation from personal finances, small business loans still consider personal credit scores. Payment history is the most important factor in getting a higher score, which ranges between 300-850 for both VantageScore and FICO. Businesses can be penalized by having too much debt, so it is essential to make sizeable payments to maintain low balances.
Improving your Credit Score
Assuming good habits regularly is the only way to obtain a perfect credit score. It will help businesses secure good rates on small business loans to vehicle financing. Balances should be below thirty percent of the available credit, and utilization rates should be kept low. Any debts that are past due or owing and the people and companies they must be paid to, should be identified immediately. Contacting creditors to pay down debt quickly is critical. Debts due to state or federal tax liens can be placed on a payment plan by contacting the corresponding government entity involved. This will boost the credit score for the near future. Diversifying credit mix by opening new accounts or purchasing through installments would positively impact the score when paid on time. However, opening numerous accounts simultaneously will hurt the score. Monitoring services for credit reports are also available starting at twenty dollars a month.
The Specific Request
Making specific requests for small business loans involving creating budgets demonstrating how the company understands its finances. When purchasing expensive equipment or ancillary products, it helps to show market prices along with all associated costs while projecting expected revenue or earnings from such assets. Accuracy, rather than specificity, is key here though. When funding requested has been explained well, it increases the chances of approval.
Financial Statement
The financial statement reveals a lot about the business with one look. The business accountant can prepare different statements like an income statement aka profit and loss statement (P&L), cash flow statement, and balance sheet. These statements show perspectives of revenue or top-line and profit or bottom-line. The cash flow statements primarily interest lenders.
Profitability
The business should examine its financial statements for the past few years and prepare accordingly. If a company is not currently profitable, a plan must be established to change this. Multiple strategies like ordering in bulk, procuring improved rates from suppliers or opening another location exist to establish operating leverage. Once the business owner understands how to improve their profit margins, chances of securing a small business loan increase significantly.
Preparing Documentation
Once the business owner has analyzed their financials, credit, and use case, they are mentally ready to start preparing documentation to apply for a small business loan quickly. Every lender will have specific requirements that must be adhered to strictly with documents necessary including accounts payable/receivable statement, balance sheet/income statement for two years minimum during business operation period along with a year’s tax returns.
Understanding the Offer
Most small businesses receive an offer from their loan application to some extent, meaning it’s crucial to understand how it was calculated and what it signifies. Lenders derive their decision on the best loan for any small business based on their financials, which includes the APR (annual percentage rate) and interest rates based mostly on credit scores. Interest rates refer to the percentage principle for the loan amount while APR refers to total interest paid annually (includes service charges & fees), and a good small business loan could have either high fees and lower interest rate providing high APR or low fees and higher interest rate resulting in low APR. To compare all of the numbers and determine which loan suits the business, the business owner needs to look at everything.
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