Which loan is best for your business?

 While specifics may vary slightly, the general small business loan requirements include the same primary elements.

Since you assume responsibility for the small business loan, your credit score matters and plays a large part in determining the loan amount. Keep in mind that if you have more than one owner, the bank will want to see credit scores for everyone, along with the overall business credit score. Before heading to the bank to apply, it may be in your best interest to check your credit report for any inaccuracies. Also, if you are close to a higher threshold, you may want to take steps to boost your score that little bit.

The bank needs to see your business banking records to assess the foundation and assign a rating, which determines how much the business can borrow. Try to abide by the following tips to make sure you are in good standing:

• It’s ideal to maintain a steady balance with regular deposits to demonstrate consistent revenue and responsible financial management.
• Avoid overdrawing your account and set up overdraft protection.
• You may want to ask for a bank reference from your company’s banking institution. It could go a long way in convincing a lender.
• Of note, most lenders like to see companies in business for at least 6 months, so you may be asked to show time in business as well.

Keep in mind that there are key numbers the bank will look at when determining your rating and loan amount. Lenders like to use a broad approach, so they will want annual gross sales along with monthly numbers for the following:

• Gross margin
• Cash flow
• Debt to equity ratio
• Accounts payable and accounts receivable
• Earnings

Some lenders ask for collateral while others do not. However, most lenders request that you list company assets on the application. They want to know what could cover your obligations in the event you can’t repay the loan. Alternatively, you can provide proof of sufficient deposits into your business bank account that can provide confidence to the lender that loan payments can be met.