Business Loan Requirements – What You Will Need to Qualify?

Business loans are one of the main financing options for businesses, whether they are already established or small enterprises. There are many responsibilities or investments a company cannot financially handle by itself, so they require business loans. This includes bringing in new raw materials, renovating, hiring additional staff, investing in new technology, and so on.

But, like a personal loan, a business needs to meet a set of requirements to qualify for a business loan from different online loan companies, listed in sites such as https://onlineloans.com.ph/. Below are the most common conditions companies should meet for faster business loan approval.

Business Credit Score

Like personal loans, a business’s credit score significantly determines whether or not a company will qualify for a business loan.

A business’s credit score measures a company’s creditworthiness. Several factors go into determining a company’s credit score. Among them include: lines of business loans/credits the company has applied over a specific period, the number of years the business has been operating, tax liens over a particular period, and the payment history of each line of credit.

Again, like personal loans, the higher a business’s credit score, the higher the chances of having faster online loan approval. A poor business credit score can affect a company’s ability to get a business loan. While it isn’t impossible for a company to obtain a business loan with a poor business credit score, the lender may impose stricter loan terms and conditions like a higher interest rate.

However, remember that start-up companies may not have a high business credit score; therefore, most online loan companies may require the business owner’s credit score.

Business’s Annual Revenue

Another major factor business lenders consider before giving online loans to businesses is their annual revenue. Why do lending companies care about a business’s annual revenue?

A business’s annual revenue is the income it makes within a year. Business loan lenders look at a company’s revenue to determine whether or not it can be capable of repaying its loan.

So, the more consistent revenue a company has, the more capable it is to repay its business loan, increasing its chances of getting a loan. And the more inconsistent revenue a business has, the less likely it will make its loan payments on time, reducing its chances of getting a loan. But what if the company is a start-up?

Small businesses still have a chance to receive business loans even with low annual revenue. However, the lender may have stricter loan terms and conditions. In this case, start-up businesses should seek alternative financing options to fund their operations.

Business Plan

A company’s business loan is another major requirement lenders need before approving a business loan. Lenders need to know what a company does, its plans to be successful, how it makes money, and, most importantly, how it plans to use the loan it is applying for. So, what should a business plan include?

Usually, the contents of a business plan vary from one company to another. However, it should have several common sections to help business loan companies understand the business better, increasing their chances of getting a loan.

Among these sections include: the executive summary, which summarizes the contents of the business plan, and industry analysis, which explains the company’s industry, and the industry’s current risks and opportunities. Other sections a business plan should have include: the market analysis, competitor analysis, product or services the company offers, marketing plan, operation plans, the company operation plans, the company’s management team, and financial plan.

The Number of Years a Business Has Been Operating

Business loan lenders also consider how long businesses have been operating before giving online loans. Why does this matter? The number of years a company has been running symbolizes its stability. So, the longer a company has been in operation, the more likely it is stable. This assures business loan companies that the company will be capable of repaying its loan.

But what about start-ups? The good news is some lenders focus on providing business loans to small businesses. Again, small businesses should consider other financing alternatives.

Business Owner’s Personal Financial History

Lenders consider this factor, especially if the business is a start-up. In most cases, loan companies offering loans to small businesses may include a “personal guarantee” clause in their loan contracts. A personal guarantee is an agreement between the lender and business owner that the company owner(s) will be responsible for repaying the business loan if the business defaults on the loan repayment.

Due to this agreement, most business loan lenders check the company owner’s credit score. If the owner has a low credit score, it might be challenging for the business to receive a loan because the lender isn’t confident that they will repay the loan if the company cannot.

Conclusion

Like personal loans, business loans also have several qualification requirements. Business owners should know what conditions they need to qualify for online loans. This will enable them to determine if a loan is the right financing option for their companies or if they should consider other alternative options.