The National Small Business Association (NSBA) says that 69% of small businesses used financing in 2016. This shows that small business loans play a key role in business growth. Typically, borrowers use these loans to start or expand a business. They may also use them to purchase inventory and equipment, or real-estate.
However, getting small business loans is not easy. Often, lenders are reluctant to lend to small businesses, especially to start-ups. This is mainly because of the high risk involved. But don’t let this deter you from seeking small business loans. Because if you plan carefully, this is a problem you can easily overcome.
Qualifying for Small Business Loans
How can you improve the odds of getting approval? Think about it from the lenders’ position. They are concerned about your ability to repay. And often they decline loans because they are unable to determine whether you will repay promptly. So keep these documents ready to prove your repayment capability:
1. Personal information
This includes your name, address, educational background, and previous experience. This is especially relevant if you are applying for a start-up business loan.
2. A concrete business plan
This outlines your company’s products, target market, cash flow, staffing, and financial projection for the coming years. Banks consider these aspects to determine whether they are lending to a business that is likely to be successful.
3. Income tax returns
Be ready to provide 3 years’ returns and one year’s bank statement. This can help the lender validate your income and financial standing.
4. A detailed debt schedule
This provides information about your business’s outstanding loans, interest rates, and monthly payments.
5. Legal documents
Keep business licenses and registrations, franchise agreements, copies of third-party contracts and business lease ready.
6. A collateral document
This describes the financial value of your personal or business property, which you may use to secure the loan. A good business plan and financial statement can help you get a loan without collateral. But some small business loans are available only against collateral.
Also Read: A Quick Guide to Working Capital Loans
It may be true that existing businesses have a better chance of getting loans approved. But this does not mean that start-ups don’t stand a chance. Small business loans are accessible to every business, provided it meets the eligibility criteria. So before you set out to apply for a loan, do your homework. Keep all required documents ready and prepare yourself to kick-start a successful business journey.