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A business loan can be the catalyst for the next big step in your life. Whether you’re a seasoned business owner or an entrepreneur, applying for a small business loan might be intimidating. It requires a lot of paperwork, incredible attention to detail, and a great deal of planning. However, with the right preparation, getting the funding you need doesn’t have to be so difficult. Though it can feel overwhelming, there are several things you can do if you want to qualify for a small business loan. 

Understand Your Business Loan Requirements 

Each lender has its own set of criteria when deciding who qualifies for a small business loan. For instance, most have minimum requirements for business experience, credit scores, and annual revenue. Qualifications may also vary between the type of loan and the loan amount. 

• U.S. Small Business Administration: An SBA loan doesn’t lend money but rather partners business owners with approved credit unions, banks, and other lenders. However, if you previously defaulted on a government loan, you’re ineligible. 
• Traditional Lender: A bank loan requires long-term thinking, especially since traditional lenders typically only grant loans for higher amounts, but you have several funding options, such as obtaining lines of credit, equipment leasing, and business credit cards. 
• Online Lender: Obtaining a loan through an online lender is similar to a traditional lender. The difference is that they can pre-qualify you and provide interest rates without affecting your credit score, which sometimes isn’t possible with traditional loans. 

Despite the criteria, even if you have past bankruptcies or outstanding loans, you are not ruled out from applying for a small business loan; your chances of a reasonable interest rate are just lower.

Create a Long-Term Business Plan 

Lenders want to see that you’ve thought out your business plan. It helps them determine how risky it would be for them to offer you a loan. The more information you provide, the better, but a business plan should at least include: 

• A description of the products or services you provide 
• Your intended target business market 
• An outline of your business strategy
• An analysis of your strengths, weaknesses, opportunities, and threats
• Your business plans for the future, three to five years down the line 

The most vital information to include is a financial analysis of your business. Your plan should have information about revenue, profits, working capital, and the amount needed for your loan to get your business off the ground. 

Prepare Your Collateral and Assets 

Lenders may require collateral before issuing a loan. These include major business assets, such as equipment or real estate, that the lender can seize and sell if you’re unable to pay back your loan. Other lenders require backing up your loan agreement with your personal assets, including savings or retirement accounts. Some may even ask for a combination of business and personal collateral. This legal agreement acts as a guarantee that an individual can repay a loan or line of credit. 

Check Your Credit Score 

Your credit score is a report card indicating your ability to repay your debts based on your payment history. It includes everything from credit card bills to home and student loans. The higher your credit score, the more likely you are to be approved for a business loan with favorable interest rates. If your score is below 740, you may have a harder time securing a loan, but fortunately, there are ways to increase your credit score: 

• Avoid Splitting Charges: Don’t split charges between credit cards. Credit raters don’t like to see you owe money to too many lenders. 
• Don’t Close Unused Credit Cards: Leaving credit accounts open helps increase your credit score, even if you don’t use them. These accounts lower your credit utilization ratio by keeping your available credit higher. 
• Leave Paid Debts on Record: Keep older debts you’ve paid off on time on your record to show you were creditworthy in the past.  

Having a favorable credit score is especially important for a small business owner, as it proves how effective you are at making financial decisions. 

Collect Legal and Financial Documents 

The more organized you are, the easier the small business loan process. There is a long list of documents you’ll need, and the most important of these documents include: 

• A driver’s license or alternate form of ID 
• Any commercial leases you have 
• Income information and balance sheets
• Both personal and business financial and bank statements
• Personal and business tax returns 

You will also need a resume of your past experiences to prove that you have a history of employment. 

Purchase Business Insurance 

While you can qualify for a loan without insurance, purchasing business insurance safeguards your business from a variety of issues, ensuring sudden and unexpected damages won’t drain you of your finances and strip you of the ability to pay back a loan. Investing in the appropriate policies demonstrates you’ve taken precautions and proves you’re a financially responsible business owner, potentially earning a more favorable interest rate from lenders. 

Despite being an intimidating process, applying and qualifying for a small business loan can be simple with the proper preparation. The right insurance can also give you the peace of mind to focus on growing your business. To gain a head start, World Insurance Associates is here to help pair you with the best and most comprehensive business insurance. 

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.