What You Must Have To Get a Loan for Your Business

If you’re starting a new business or expanding one that you’re currently operating, you’ll likely need to take out a loan to cover expenses. That’s where banks come in.

Keep in mind that banks or other lending institutions are in business to make a profit. If a bank loans you money that you can’t repay, it suffers loss and faces the risk of becoming insolvent. To keep that from happening, financial officers look at several factors to determine whether loaning you money is a good investment. Here are some things you need when applying for a loan for your business.

Good Credit Score

Your credit score is based on the amount of debt you have and how prompt you are at paying them. It’s a three-digit number lenders use to determine whether they can safely loan you money. Peter Comisar cautions business owners to make sure their rating is good before applying. Try to limit the number of credit cards you use and always pay on time.

Collateral

Banks are hesitant to loan you money unless you have some asset they can seize should you fail to pay. Be prepared to put up a house or other large asset as collateral if you plan on taking out a loan.

Experience

A bank is more likely to cut you a check if they know you have the experience to make your business successful. Although they will sometimes loan to a business that’s only been open a few months, most businesses need to have been in operation for between one to two years before a bank will agree to give them financing.

More Income Than Debt

Banks will look at your debt ratio, meaning the amount of debt you have as well as the amount of income you bring in, to determine whether they can safely loan you money. If your debt is greater than your income, you will probably not qualify for a loan.

Annual Income or Revenue

Banks want to know that if you take out a loan, you’ll have sufficient income to pay that loan back, so you’ll need to demonstrate that you are making a certain amount of money. The size of that amount is determined by the bank at which you apply.

Getting a business loan is not impossible, but it does take planning and preparation. You need to assemble financial documents and other proof that you are a good financial risk before you’ll qualify.