Answer These 4 Major Questions For Any Business Loan Application

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ANSWER THESE 4 MAJOR QUESTIONS FOR ANY BUSINESS
LOAN APPLICATION
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No matter what type of business loan you apply
forwhether its an unsecured personal loan from
a bank, a line of credit from a credit union or a
merchant cash advance from an alternative
lenderthere are 4 critical questions that you
should be answering to every lender.
How much time you have been in business?
On the contrary, if you havent been in business
for that long, turn over to alternative financing
or secure funding with your personal credit.
Initially, if youre able to sustain without
financing, the best is to preserve. Once you have
the ample time in business, you can gain lenders
trust and theyll be willing to run the risk on
you. The key here is to stay afloat until you hit
the 5-years mark, and avoid taking too much debt
by working on improving your credit scores.
The more, the better applies to this. According
to a study, almost 50 of small businesses fail
in their first five years of operations. This
failure can be from a lack of adequate capital,
bad management, faulty planning, excessive
budgeting or cash flow problems. If youve played
the odds, lenders will be anticipating youre on
the right track and that your business will be
operating long enough to repay the loan.
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How much money your business earn and save?
With a good stream of business income, youll
less likely to be viewed as a risk to the lender.
On the contrary, a high income doesnt mean you
can get better rate if your fixed expenses are
high.
Knowing your business revenues and profits is the
second most crucial information every lender
wants to have. They want to see how much money
your business is generating and the Net profits
you actually keep. It is common practice to share
your full financial profile, including credit
history, income and assets while applying for
business loans.
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For every lender, it starts with the numbers. By
numbers, we mean your business cash flow. Its
the key to any successful business. A business
cash flow statements demonstrate lenders how much
money is available to your business at any given
time. Lenders want to see how well your business
is managing cash flow by reviewing financial
statements and average bank balances. Even a
moneymaking business can struggle with cash flow
issues.
However, it doesnt mean you wont be able to
secure a business loan. Use your business plan to
describe your loan repayment plans, whether it be
from revenues growth, earnings, or from debt
refinancing, and so on.
How healthy is your cash flow management?
A healthy cash flow demonstrates potential
lenders that your business has the capacity to
cover the costs of any financial obligations,
along with the cost of a new loan. In simple
words, if the cash flow calculations specify your
business unhealthy, you dont have a dealbeing
it the primary reason of loan denials.
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Late payments, missed payments, outstanding debts
defaults, and bankruptcy are all red flags to
lenders. Its a contradiction, but, the less debt
you owe, the better your chances of getting loan.
When securing business financing, your personal
credit score really matters. When you dont have
a 5-years time in business, your personal credit
score is all a lender has to concludes your
creditworthiness. Even if youve little time in
business with a decent business credit score and
solid personal credit score, your personal credit
score serves as a reflection of your overall
creditworthiness for the lender. Generally, a
personal credit score of 780 is excellent, and a
credit score of 661 to 780 is very good with 601
to 660 as fair credit score.
Most of all, lenders want to get paid. Which is
why a debt repayment history is of particular
importance for the lenders. Moreover, payment
history constitutes 35 of the FICO score of
potential borrowers, No lender want to loan
money to someone with unsatisfactory commitment
to repaying debts.
What is your debt repayment history?
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However, it doesnt mean you need a solid credit
rating to secure a business loans. In fact, most
small businesses who secure funding through
Merchant Advisors has an average credit score of
600 to 660. Nonetheless, the higher your credit
score is, the more business financing options
youll be able to qualify for at lower interest
rates and desirable terms.
Learn more about what a credit score is and how
to improve it along with the minimum credit score
requirements to qualify for business loans.