5 Steps to Take When Applying for a Business Loan
If your business could use an influx of cash to help it grow, fund a move or to get through its slowest season, a business loan could be the right answer.
Here’s what you need to know about applying for a business loan.
1. Check your credit
Before you apply, check your personal and business credit health. We suggest using annualcreditreport.com. 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.
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. Because of low federal regulation and extensive criteria, it can be difficult for small businesses to even receive this score. Check with your lender to see if this score will be used for consideration in your application.
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.
2. Update your business plan (for new businesses)
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
In general, 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 from the past three years
*Each financial institution’s requirements may vary.
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 and the average size of the loans they offer.
Consider applying for a business loan through a credit union. A credit union will offer you personalized service and a competitive interest rate.
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.
At Truity, all of our business service and lending is locally-based in Bartlesville, Oklahoma and Lawrence, Kansas. That means we’re here for you from start to finish. We specialize in identifying and creating personalized solutions to help your business succeed. Click here for more information.