Most companies run on credit to sustain their initial business expenses. They file for a business loan to cover liabilities for the following: purchasing inventory and equipment or credit to support expansion. Previously, we have highlighted various places where businesses can get a loan, including banks and federal programs.
But, what if you have been denied several times?
Do you ever wonder what the lenders look for in a borrower?
Let this post give you different qualities that creditors look for in businesses to be considered credit-worthy.
1. Good credit history
The initial document that lenders review is your personal and business’ credit history. It will provide them information about your previous loans, how long you had it, and if you’ve been paying it accordingly. “The longer you have your loan, the better,” said OneMain Financial. What they aim to get from this is how consistent you are in paying your bills on time, including your personal bills (cell phone, rent, utility bills). The resource added that those borrowers with better credit history also get a lower interest rate.
2. Recent credit applications
To give them a better understanding about your loan application, lenders will review your recent efforts to get credit. If they see that you or your company has previous credit applications elsewhere and were successful, it may appear as a red flag. They want to know where you are taking the money and why you need more. Rapid expansion of business liabilities signals a start of a downward spiral, as it indicates the company’s inability to pay bills.
3. Ability of the business to pay
Another important quality that creditors will look out for is your business’ capability to pay the loan along with its interest and other fees. So, if you are requesting a mortgage, consider reviewing your company’s financial capabilities from assets, capital, and other collaterals. According to resource page FXCM, knowing yourself and your business’ capability goes along way as you will be able to avoid future risk as well as understand how far you will be able to cope with financial challenges. Get educated and review your financial resources first before applying for any sort of loan or credit.
4. A clear financial plan
If you are applying for a business loan, you must know exactly where you plan to use the money. Do not leave this space unanswered when the creditors ask you where you want to invest the money you are borrowing. When lending money, lenders want a business with a clear financial plan – where will you use the money? How do you plan to pay the debt? How confident are you in paying the bills? Having a clear financial plan at the interview with the creditors will give them confidence that their money will be go to good use.
How did you get your loan approved? What other tips do you want to share with our readers who plan to get a business loan?
If you get denied, consider other financial sources such as crowdfunding.