- A small business owner looking to take out a business loan must be a U.S. citizen or resident alien with a valid Government ID.
- The business owner must have a good credit score, as the lender will check that the borrower has a history of making on-time payments.
- You must have a solid business plan to assure the lender how the loan will be used and how it will help the business grow.
- The lender requires the collateral to have something as security to back up the loan in case of default.
- The lender will check the proof of your income to evaluate your repaying capacity.
- 7 Figures Funding provides funding services to businesses in Fort Worth, TX, and the surrounding areas.
Business loans offer an excellent solution for small business owners to get the money they need togrow their businesses. However, there are many things you need to know before you apply for one.
Do you need a business loan to help growyour business? Many small business owners are turning to business loans to finance their businesses. But before you can qualify for a loan, there are a few things that you need to know. 7 Figures Funding will share4 essential information to acquire a business loan.
What is a Business Loan?
Business loans are typically used to finance the purchase of property or equipment or any other business-related purpose. To qualify for a business loan, companies must have a good credit history and demonstrate their ability to repay the loan.
Business loans are typically larger than personal loans and have different repayment terms. Companiescan use business loans for various purposes, including purchasing inventory, growingoperations, or financing renovations.
Businesses usually need collateral, such as property or equipment, to provide security against business loans. These loans are expensive due to their higher interest rates than other loan types, such as personal or home equity loans.
3. Duration to Repay
Business loans are repaid over a period known as the loan term. The loan term can vary depending on the size of the loan and the repayment schedule decided between the borrower and the lender.
It could range from one year to 25 years, depending on the lender and the type of loan. The repayment schedule for a business loan is typically monthly, although some lenders may allow weekly or bi-weekly payments.
4. Consequences of Defaulting on Loan Payment
Businesses unable to repay their business loan may be subject to foreclosure proceedings. Business lenders will often require firms to have insurance to protect their investments in case of default.
Small business owners must carefully assess their needs before applying for a business loan and compare offers from multiple lenders to lock in the best deal possible.
Also, read our blog on the three loan blunders that keep you from making the most of it.
Requirements for a Business Loan
The requirements for a business loan vary depending on the lender. In most cases, you will have to show some collateral and a detailed business plan.
1. Government ID
The business owner must be a U.S. citizen or resident alien with a valid government-issued ID. It is because the lender will need to verify the borrower’s identity.
2. Personal Guarantee
One of the requirements for a business loan is a personal guarantee. The business owner is liable to repay the loan if the business cannot do so. The private security can be in the form of a personal asset, such as a home or car, or a co-signer on loan. If the small business defaults on the loan, the lender can come after the small business owner’s assets.
3. Business Plan
The business plan should outline the purpose of the loan, how the funds will be used, and how the loan will be repaid. The business plan should also include financial projections for the business, such as income statements and balance sheets.
4. Financial Statements
In addition to a business plan, lenders will also require financial statements for the business. These statements can include tax returns, profit and loss statements, and balance sheets. The financial information will give lenders a fair idea of the financial health of the business and its ability to repay the loan.
Collateral is an asset that can be used to secure the loan in case of default. Common types of collateral are real estate, vehicles, equipment, and inventory. Lenders may require that certain types of collateral be insured to protect their investment.
6. Credit History
Lenders will also want to review the credit history of the business and its owners when considering a business loan request. A strong credit history indicates that the borrower has a proven track record of making timely payments and is less likely to default on the loan. Lenders may also consider factors such as bankruptcies or foreclosures when evaluating credit history.
7. Ability to Repay
When considering a business loan request, lenders want to know that the borrower can repay the loan. Lenders will typically look at factors such as cash flow, debt-to-income ratio, and collateral value while evaluating the repaying capacity of the applicant.
8. Loan Purpose
Lenders will also want to know the loan’s purpose before approving it. Everyday purposes for taking out a business loan include purchasing property, growing small businesses, expanding established companies, or consolidating debt. Lenders approve loans for specific purposes more quickly than for general needs, ensuring that the borrower has a proper plan for efficiently operating the business.
9. Backup Plan
Another business loan requirement is that the small business owner has a backup plan if they cannot repay the loan on time. The lender wants to know if the small business owners have thought about the contingency if they cannot make their loan payments on time and planned to avoid defaulting on the loan.
10. Down payment
The business owner has o make a down payment. The lender wants to know that the applicant has some skin in the game. Down payment requirements vary from lender to lender, but you can expect to put down at least 20% of the loan amount.
Click here to learn how to get a business loan in five steps.
Need a Business Loan in Fort Worth, TX?
If you need funds to grow your business in Fort Worth, TX, contact 7 Figures Funding today. We can help you get prequalified to move forward with your business goals. With our years of experience in business funding, we know how to secure the best rates and terms on your loan. Contact us now to get started!