5 Most Common Small Business Financing Requirements
Small businesses are the backbone of our American way of life. Yet more small businesses are failing than ever before. Granted, the economy is still in rough shape, even though it's appearing to slowly improve, but this isn't helping the small businesses stay open. While the recovery may have gotten to Wall Street, it hasn't yet made it all the way to Main Street. What drives most small businesses under is a lack of immediate cash flow which could be handled with a small business loan.
The main drawback to this is making sure the business is going to be able to pay back that loan. In order to qualify, there are several requirements that small businesses have to meet. Here is a list of a few:
1. There has to be a business plan in place. Either the original business plan if one was developed, or one to plan out the uses for funds and the projected financials based on the loan.
2. If at all possible, collateral will need to be posted for the loan. This can be equipment, machinery, land and building or anything else of value. Having collateral gives the bank or finance company something to put a lien on in case the business still fails.
3. Business credit scores need to be good. These scores are used just like personal scores are and can affect the amount or availability of small business financing. Check these before trying for a loan as each check by a lending institution affects the scores.
4. If the business is a partnership or has multiple partners, anyone who owns more than 20% may have to have a personal score of 680 or higher. Check these as well.
5. Each lender will have different requirements that will need to be met. The best way to make sure you're covering all your bases is to check with the lender first and see what those requirements will be. That way you don't go into the loan process and have issues because a step wasn't prepared for. This lack of preparation will cost you time because you'll have to go meet that requirement before the process can continue. And that may be time you don't have.
Also, make sure what type of small business loan or financing you really need. There are 5 basic types and each are geared for a specific set of needs. Do the research and make sure you're looking at the right type of loan, otherwise you may undercapitalize and will wind up in the same position you're in now. Take your time and make sure you're efforts are going to lead you to success.
Questions and Answers
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Applying for a small business loan refers to the process by which a business owner requests funding from a lending institution. The process is usually not very easy and many documents are required for a lender to consider loan requests.
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