So you’re thinking of getting a commercial loan for your small business. Before you actually submit an application, take a while to go through your available options and look into a few crucial issues, like the present financial position of your business, its growth stage, and of course, your immediate and long-term plans for it.
Here are the things you should focus on as you decide which commercial loan is right for your needs and objectives:
Your annual income is a key indicator of how eligible you are to take a small business loan. Before you get approved for a loan, lenders will first ensure that your revenue is enough to settle your loan payments, and that’s outside your business’ operating expenses. They will ask for your recent Profit & Loss Statements and your business and personal tax returns to verify this.
Your revenue is just one aspect of running a successful venture. How you handle your money is just as important. Lenders have to be sure that you can maintain a safe cash cushion in case there are unanticipated expenses threatening your cash flow. Even your sales are skyrocketing, lenders can still doubt your ability to repay your loan fully and in a timely manner if they think that your balance is too low.
To boost your chances of passing the underwriting process and having access to wider options, be sure to have at least three months’ worth of your operating expenses, and that should include your loan payments. Lenders will assess your latest bank statements while calculating your average bank balance, before determining whether or not your business can survive while you repay your loan.
Lending money to a younger business is way riskier compared to lending to a more stable company. Obviously, if a business has been there for ten years, it has shown more stability compared to another business that is yet too young and unproven. Truth is, only 50% of small businesses survive beyond the 5-year mark.
Finally, your personal credit score is probably the most crucial requirement in the world of commercial loan underwriting. Lenders automatically assume that the way you take care of your personal finances is the best indicator of how well you’ll run your business finances. Therefore, your personal credit score will always have a big hand in your eligibility. Make sure this number is kept high for your benefits.
Your personal credit score is basically proof of your trustworthiness as a borrower. It depends on a whole range of factors, such as credit utilization, bankruptcies, and more.