Getting Yourself Ready To Apply For A Start Up Business Loan
These days, there are diverse ways to make a living. One good way is by starting your own business. If you are planning to start a business, you are probably thinking of how to get a business loan. Access to funds is crucial to any business, especially a start up business which would be considered high risk.
Even so, when it comes to searching for business loans, it is not always easy. One important factor is your PERSONAL credit. Your new business will not have its own credit or finances. The bank will therefore look at the business owners credit and finances to make their decision.
Have A Clean Credit Report
If you are going to apply for a business loan, ensure that your credit report does not contain any blemishes. Negative information on your credit reports will affect your credit score. Lenders will not approve your small business loan if your report has a lot of negative trade lines.
You can request a copy of your report from the credit bureaus. According to the law, you can get a copy of the report once every year FREE from annualcreditreport.com, but keep in mind they do not give you a credit report with your credit score. If you want your score, you have to pay a service. If you have excellent credit, obtaining a small business loan will be a lot easier . A score above 720 is a good number.
If you have bad credit, you need to work on improving your credit score before applying. You can dispute the negative items yourself or you can hire a credit repair company to help you.
Also, your bank may deny your request if they notice either of these warning signs:
- Excessive loan inquires
Can be an indicator that you are seeking a large amount of financing. This will make the cautious of extending you any additional financing. The unfair part is that while you may have applied at all those places, you may not have been approved. Only apply for the amount you need, and research your lenders before you apply.
You need to pay these down. Lenders like to see that you are using 30% or LESS of your available credit limits. A maxed out credit card is another indicator of a high risk borrower.
- Bankruptcies
Many lenders will reject a client if they have a bankruptcy, even one that has been discharged. Make sure you read your lenders requirements before you apply.
- Judgments
If you have a judgement work on paying it off or provide proof that you are making payments.
- Child Support
If you are behind on your child support payments. Many lenders will decline automatically. Make sure you are up to date or have the paper work from the state proving you are making your payments on time.
- Charge-offs / Collections
If you can, try to negotiate with these lenders. If a deal can be worked out tell them you want the credit line to show paid or ask them to delete themselves completely from your credit report. BE CAREFUL you MUST get everything in WRITING on the creditors letter head. DO NOT send money before you have this. If the deal falls apart, and you make a payment, you reset the date of last payment. The creditor can report it with the fresh date and it will hurt your credit score a lot more than what it was doing previously! If you are not sure what to do, turn to a professional agency to help you.
Gathering Required Documents
Look at your business loan request thru the eyes of a lender and conduct a self-analysis. Would you consider yourself a strong credit risk? A borrower applying for a business loan should have good to excellent credit and be financially stable.
While there are lenders that will lend to a business owner with bad credit, the rate and fees will be much higher than what is offered to someone with good credit. A high credit risk indicates that you are like to default in payments.
Lenders will also look for:
- A strong business plan
- Assets / Additional collateral
- Experience of all business owners / partners.
- Especially the experience / training they have in the business they are looking to start
- Tax Returns (usually 2 years)
- Personal Bank Statements (generally 3 – 6 months)
- Personal Financial Statement on all owners
- Resumes on all owners
