Applying for a business loan requires some prep work beforehand to make sure you're putting your best foot forward with lenders. Whether you're opting to get a loan from a bank or an online lender, you want to present an accurate picture of your business's financial health. With that in mind, here's a checklist you can follow as you prepare to apply for a business loan.
Check Your Credit
One of the things lenders consider when reviewing business loan applications is your credit history. This includes both your personal credit report and score as well as your business credit rating if you have one.
In most instances, lenders will review your FICO credit score to assess your credit health. This is the most widely used consumer credit scoring model, and it bases your score on five specific factors:
- Payment history
- Credit usage
- Length of your credit history
- Credit mix
- Credit inquiries
If you have credit cards, personal loans, student loans or a home loan in your name, these accounts will show up on your credit report. Your account activity, including your payments and balances, factor into your score.
Your business credit score is based on credit accounts associated with your business. That may include a business credit card, a previous business loan, utility accounts or vendor tradelines you've established.
If you haven't already separated your business and personal finances, you'll want to do that ASAP.
There are several websites that allow you to check both your personal and business credit scores for free, including Credit Karma, Credit Sesame and Nav. It's a good idea to take a peek at your report and scores to see how you measure up credit-wise in the eyes of lenders.
Get Your Financials in Order
Along with your credit score, lenders are interested in how financially sound your business is. Specifically, they want to see what kind of revenue the business is generating, how profitable it is, how consistent your daily revenue is and whether you've paid your taxes on time.
There are some basic documents you'll need to organize for the lender. These include a balance sheet, a profit and loss statement and (sometimes) a cash flow statement. If you've been using an accounting software program to track your business income and expenses, that should make it easier to draft these documents.
The lender will also want to see your tax records to compare how the numbers match up with what's on your financial statements and make sure that you don't have any outstanding tax obligations.
Review Your Deposit Account History
The third element lenders consider is your banking activity. This is important for two reasons. First, you'll need to have an account available that the lender can deposit the loan proceeds into. If you're getting a loan through an online lender, you should be able to link your account for easy access.
Second, the lender will want to look at your deposit history for at least the previous three months to see how much cash you have in your account and how your balance has fluctuated over time. A stable cash flow, paired with a solid credit score and strong financials, influence how likely a lender is to approve you for a business loan, how much they're willing to lend and the interest rate (and APR) you'll pay.
VIDEO: How to Apply for a Business Loan Online
Curious about what it's like to apply for a business loan online? Bond Street CEO David Haber walks you through the process in this video — it's super easy!
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