Entrepreneurship

Small Business Loans and Qualifications Required

Growing a small or medium-scale business can be hard without the necessary funding to see it through. However, did you know that you can request a small loan regarding your business from banks and other lending organizations or financial institutions that cater to business – whether it’s a start-up or has been running for a year or more?

Small business loans, or SBA loans, are usually loans that are received and repaid with interest to the lender. Just to be clear, most small business loans are denied because of the risks involved with them. In fact, many banks and lenders deem such loans “high-risk” and desist from giving them out too often.

Although banks may deny over 80% of SBA applications, you may be the lucky entrepreneur with the right qualifications.

How do Small Business Loans Work?

Applying for a small business loan can be quite frustrations – especially for new businesses. The lender asks a lot of questions, some of which include previous experience, where you intend to utilize the funds, the future of the business, and how you intend to repay the loan. In addition to the above, and even more questions not mentioned, you will be required to provide certain documents ranging from tax clearance and credit reports to collateral to help secure the loan if it is granted.

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How to qualify for a Small business Loan:

To be considered for a small-time loan, you need the following;

  • Good credit: a good credit score is the beginning of being considered for an SBA loan. So, if your credit score is bad, it is best to start fixing it before submitting an application.
  • Age of business: the age of the business is the second criteria that will qualify you for an SBA loan. Most lenders will not lend funds to start-up companies with less than 5 years in business. This is because these businesses are not yet able to provide relevant business records, bank statements, accounting statements, and tax return documents that are used to ascertain the authenticity of the business.
  • Collateral: stable collateral or bond that will help secure the loans in the form of property or security.
  • Business plan: A business plan is the next thing that you should provide to the lender. The more profitable and viable your business, the better your chances of securing an SBA loan are. So, if you don’t have a business plan, it is best to have a professional business consultant draft a genuine plan for you. If you would like to learn more about business plans, check out this article.

Assurance: A guarantor or surety is also a method for assuring that your SBA loan application will be a success. The patron is the one that stands in place and assures the bank or lender that their money will be either paid back in full or they are capable of paying back the loan if the borrower fails. The guarantor should be up-to-date with bank records and all legal and financial documents duly provided for keeps.

With the following in hand, you have a guarantee that your SBA loan will be a success and your business will get the necessary boost to succeed. Otherwise, your application will be another high-risk loan not worth tending to by the lender.

Bottom Line

SBA loans can be great for helping businesses grow and succeed in their field. These loans can be just what a start-up needs to become the “next big thing.” However, if you would like to obtain one of these loans, you need to do your homework and be prepared for everything the lender will be asking you in order for you to be approved. If you would like to learn more about SBA loans, or loans in general, check out this book The SBA Loan Book: The Complete Guide to Getting Financial Help Through the Small Business Administration by Charles H Green.

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