Before you apply for small business loans, you need to make a detailed business plan that shows how you will use the extra money to fund your business. Figure out what you want to do with the money for your business, such as expand into new markets, improve a product or service, grow your team, open a new location, or just have a safety cushion.
When to ask for money
When your business needs money and you meet or exceed the minimum requirements, that’s the best time to apply for a business loan. Most of the time, lenders look at the following:
Credit score: Lenders will first look at your business and personal credit history to figure out how risky you are. Lenders look for borrowers with a credit score of at least 680, but the exact minimum score depends on things like your industry and the way the economy is doing at the time.
Years on the market: Most lenders want to see that a business has been open for at least a year. For a small business loan, you may need to have been in business for at least two years, depending on the lender, the type of loan, and the amount you want to borrow.
Annual revenue: Most traditional lenders want you to make a certain amount of money each year, usually between $50,000 and $250,000. Microlenders, on the other hand, may offer short-term loans as small as $2500. Before going to a lender for a loan, make sure your business makes more than their minimum amount of money.
Ability to pay: Lenders will also look at your ability to pay back the loan. Review your business’s finances carefully and make sure you have enough cash flow to pay your bills on time.
How much cash you need
Make sure you know how much money you want to borrow before you meet with potential lenders. Make sure that this number is the amount you really need to reach your goals and that you can pay it back.
Different kinds of lenders
Most people think of traditional lenders like banks, credit unions, and financial companies when they think of a lender. There are, however, other ways to get money for your business, such as the following alternative lenders:
- Peer-to-peer lending
- Crowdfunding Cash Advances for Merchants
- Getting money from family and friends
When deciding between different ways to borrow money, you should think about each lender’s loan terms, or how long the loan will last if you only make the minimum payment each month. Also, check to see if there are any other terms and conditions written under “loan terms.” Loan terms can be anywhere from a few months to several years, depending on the lender and the loan.
Most of the time, you have to pay back a business loan with a regular monthly payment over the length of the loan. The amount you pay with each installment depends on how much you borrowed, what kind of loan you took out, who gave you the loan, your credit history, and other factors. When a business doesn’t pay back a loan, this is called a default, and it can hurt its creditworthiness in a big way.