Business Loan Requirements:
How to Qualify For A Business Loan 1. Business & Personal Credit Scores When you submit a business loan application, a lender will typically review both your personal and business credit scores to assess the risk you pose. While a bad personal credit score can hurt your chances of approval, a good personal credit score can improve your loan approval odds and help you secure a lower interest rate. 2. Annual Business Revenue & Profit Lenders often have minimum annual revenue requirements, and some have minimum monthly revenue requirements, too. To confirm your business’ earnings, a lender will request your business’ bank statements and income tax returns. You can upload your bank statements manually or allow a lender to connect to your bank and analyze your statements, if available. 3. Time in Business Businesses that have been in operation for longer have a greater chance of loan approval. While minimum time requirements vary, it’s common for traditional lenders to require you to have at least two years in business. Online lenders often require applicants to be in business for at least six months to a year. 4. Debt-to-income Ratio Some lenders will review your debt-to-income (DTI) ratio to determine whether you can afford to take on additional debt. Your DTI ratio weighs your monthly debt against your gross income. You can calculate the DTI ratio by dividing your monthly debt by your gross income.The higher your DTI ratio, the greater your risk is as a potential borrower. 5. Debt-service Coverage Ratio Another ratio some lenders consider is the debt-service coverage ratio (DSCR), which measures your business’ annual net operating income in relation to its total annual debt. Remember, annual net operating income is another way to say earnings before interest, taxes, deductions and amortization (EBITDA). 6. Business Plan Some lenders may require you to share your business plan, especially if you’re a startup, which may include the following: Financial projections Purpose of using the funds Industry outlook Competitive analysis Your plan should provide a lender with a detailed outline of how you intend to use the loan funds and include a five-year forecast of cash flow, income and expenses. Documents Commonly Required for Business Loans Before you apply for a small business loan, gather the required documents. A lender will likely ask for some or all of these items: Bank statements Personal and business tax returns Business licenses and permits Employee Identification Number (EIN) Proof of collateral Balance sheet Copy of your commercial lease Disclosure of other debt Accounts payable and accounts receivable aging Ownership and affiliations Legal contracts and agreements Your driver’s license Business insurance plans Payroll records Incorporation documents Business plan
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Cox Business News staff WriterJournalists from around the world writing to give you answers, with Assitant Editor Dr Muhammad Hassan Fayyaz for articles in June and July 2021 The Editor In Chief of Cox Business News
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