If your business can use a shot of cash to help it grow, fund a move or to get through its slowest season, a business loan can be the right answer.
Here’s what you need to know about applying for a business loan.
- Check your credit
Before you apply, check your personal and business credit health.
Personal credit scores range from 300-850. A score in a range of 580-669 is fair, 670-739 is good, 740-799 is very good and 800-850 is exceptional. In general, the higher your score, the easier it will be for you to qualify for a loan and the lower the interest rate you’ll have on your loan when approved.
Business credit scores are measured differently. Experian uses Intelliscore Plus as its credit scoring model, with scores ranging from 1 to 100. Equifax assigns each business a payment index score, which ranges from 0 to 100; a credit risk score ranging from 100 to 992 and a business failure score ranging from 1,000 to 1,880. The D&B score, assigned by the Dun & Bradstreet Corporation, ranges from 0 to 100. Finally, the FICO Small Business Scoring Service score ranges from 0 to 300.
If your personal and/or business credit scores are low, work on improving your credit before applying for a loan. Be timely or early with your bill payments, work on getting rid of debt and check your monthly credit statements for any erroneous charges.
- Update your business plan
Most lenders will ask to see a current business plan before approving a loan. It’s a good idea to review and update yours so it’s ready to show a potential lender. The plan should include information about the loan, such as how the company plans to use the funds.
Be sure to have a comprehensive business plan to show a prospective lender. The plan should include details about how the company intends to use the funds, the anticipated increase in revenue and plans for repaying the loan.
3. Organize your personal and business documents
You’ll need the following documents and identifying paperwork when applying for a business loan:
- Photo ID
- Accurate monthly financial statements from the past two years
- Business license
- Any commercial leases
- Business insurance plans
- Payroll records
- Incorporation documents
- Current financial obligations
- 3 months of bank statements
- Personal and business tax returns
4. Research potential lenders
A business loan is a big deal, and it’s best not to jump into the decision too quickly. Take the time to research potential lenders carefully, being sure to check each lender’s eligibility criteria, the average size of the loans they offer, their current interest rate average and more.
Consider applying for a business loan through a credit union. A credit union will offer you personalized service, looser qualifying criteria and a competitive interest rate. [Call, click, or stop by Advantage One Credit Union today to discuss your options.]
5. Submit your application
You’re ready to apply for a loan! With luck, you’ll soon have the funds you need to take your business to the next level.
Your Turn: What are your best tips for taking out a business loan? Tell us about it in the comments.