At OnDeck (learn more about our business loans here) we’ve delivered over $2 billion to businesses since we started making small business loans in 2007. After talking to all of those business owners—and countless others—many tell us they wish that had known how to better prepare for the search for a loan. With that in mind, let me share three things you need to know before you start your search:
What do you need the money for?
This is the first question to ask yourself and will help you find the business loan that is the best fit for your situation with terms that make the most sense for your business. Because some lenders specialize in loans for specific purposes, if you can articulate what you need the money for, it will help you weed out lenders that won’t be able to help you.
There isn’t a one-size-fits-all small business loan today, but a savvy small business owner can match his or her need with a business loan likely designed for that particular purpose. In some instances, online lenders, non-profit lenders, new online factoring companies, or others might be a better fit than a traditional bank loan. Knowing the loan purpose will help you determine the best places to look for a loan.
What you need to qualify:
The last thing you want to do is spend a lot of time looking for a loan you won’t be able to qualify for. Before you start looking, honestly evaluate your current situation. A good personal and business credit profile will not only open the doors to additional options; it usually means more favorable terms and lower interest rates.
For example, if you have a personal credit score of less than 680, the odds of getting a business loan from the bank are pretty slim. And, the cutoff for an SBA-guaranteed loan is 650. Other lenders are less strict about personal credit score and even accept a score as low as 500 if other factors are in place—like a healthy cash flow, a year or two in business, and annual revenues that meet the lender’s requirements.
The documents you’ll need to apply:
Depending upon whether you’re seeking a loan from a bank, the SBA, or one of the new online lenders, the documents you’ll need to apply will vary. Here’s a good list of some of the most important documents that will help get the process started and in some cases, may even be all you need:
- Financial statements (including annual revenues, profit & loss statement, along with the most current three statements for your business checking account)
- Business and personal income tax returns
- Your business Tax ID and your Social Security Number
- Your business license
- A business checking account
Getting a small business loan can be a challenging process, but preparing before you start looking and apply will likely make the process easier. And, having this information at your fingertips will not only help you better understand your situation, it may even improve the odds of success.