How to Get a Small Business Loan in 2023
If you’re like most small business owners, you probably need a loan at some point to help with expenses or to grow your business. But with so many different lenders and loan products out there, it can be hard to know where to start.
Here’s a look at the process of getting a small business loan in 2023, including what you’ll need to qualify and how to compare offers.
What you’ll need to Qualify for a Small Business Loan
The first step in getting a small business loan understands what lenders are looking for.
Here are the 15 key qualifications:
A strong credit score:
This is one of the most important factors that lenders will consider. If you have a high credit score, it shows that you’re a responsible borrower who is likely to repay your loan on time.
A strong business credit score:
In addition to your personal credit score, lenders will also look at your business’s credit score. This is a separate score that takes into account your business’s payment history and borrowing history.
A solid business plan:
Lenders will want to see that you have a well-thought-out plan for how you’ll use the loan and how you’ll repay it. Your business plan should include financial projections and other supporting documentation.
Sufficient collateral:
Collateral is something of value (such as property or equipment) that can be used to secure the loan in case you default. Lenders typically require collateral for loans over $50,000.
A strong track record:
Lenders like to see a strong track record of financial responsibility. This means that you have a history of making on-time payments and managing your finances well.
A healthy business:
Lenders will want to see that your business is doing well financially. This means that you have consistent revenue and profitability and that you’re growing at a healthy rate.
Adequate cash flow:
Cash flow is the money coming in and out of your business. Lenders will want to see that you have enough cash flow to cover the loan payments, as well as your other business expenses.
Reasonable debt-to-income ratio:
This is a measure of your ability to repay the loan. Lenders will typically want to see a debt-to-income ratio of 50% or less.
A minimum amount of time in business:
Most lenders will want to see that you’ve been in business for at least one year, although some may consider loans for businesses that are newer.
An established business location:
Lenders will usually require that you have a physical location for your business. This could be a retail store, office, or warehouse space.
Business licenses and permits:
Lenders will often require that you have all the necessary licenses and permits for your business. This varies by industry and location.
Proof of income:
Lenders will want to see proof that your business is generating enough revenue to repay the loan. This could include financial statements, tax returns, or bank statements.
Personal guarantee:
A personal guarantee means that you’re personally responsible for repaying the loan if your business can’t. This is typically required for loans over $100,000.
How to Compare Small Business Loan Offers
Once you know what lenders are looking for, you can start shopping around for the best small business loans for your needs.
Here are a few things to compare:
Interest rates and fees:
Be sure to compare the interest rate and any fees associated with the loans. These can add up, so it’s important to get a loan with the lowest possible interest rate and fees.
Loan amount:
Think about how much money you need to borrow and make sure the lender is willing to lend you that amount.
Repayment terms:
Compare the repayment terms of each loan and choose one that you’re comfortable with. You’ll want to consider the length of the loan, the repayment schedule, and any prepayment penalties.
Conclusion:
Now that you know what to look for in a small business loan, you can start shopping around for the best option for your needs. There are many different lenders out there, so be sure to compare offers before you decide on a loan.