Tips on How to qualify for a Small-business Loan

Tips on How to qualify for a Small-business Loan

Getting a loan is one of the ways you can generate capital to fund your small business. This article describes five tips which can help you get a loan quickly.

1. Excellent credit scores

An excellent credit score is always over 800, but even when you have a good score that is below 800, you are safe to qualify for a loan. What is the essence of having a good credit score? A good credit score reflects your ability to pay debts. You can get your credit scores every week from many credit card providers. By maintaining an excellent credit score, you increase your chances of qualifying for higher loan amounts. You can maintain your credit score by paying your loans and bills on time.

2. Meeting a lender’s requirements and qualifications

For you to become a stronger applicant and your credit to be quickly approved, you should meet the requirements and qualifications of your lender. It is crucial to exceed the lender’s requirements for your loan request to be accepted, though some lenders provide flexibility for underperforming applicants.

3. Legal and financial documents

Many lending institutions ask for various legal and financial records when you apply for a loan. Gather all your documents including personal and business tax returns, business licenses, financial projections of your business, your bank statements, income statements, and balance sheets.

4. Good business plan

Come up with a strong business plan that you will submit to lenders as they will want to understand how you plan to use the money that they may offer you. Reviewing your business plan will help lenders understand your ability to repay the loan. So, your business plan should be precise and objective.

5. Provide Collateral

By providing collateral, you will increase the chances of getting a small business loan as it will be used to back up the loan, and the lender will feel secured to give you credit.

Conclusion

Get your small business loan approved quickly by adhering to the tips described and start to grow your business.

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Do lenders verify tax returns?

Do lenders verify tax returns?

When you are applying for a mortgage, your potential lender wants to make sure you are telling the whole truth about your income and assets before approving your loan. To make sure there is no fraudulent activity, your lender will usually look to verify the income level you are claiming matches the income stated on your paystubs and on your loan application.

Although some lenders will ask the applicant to submit their copies of their IRS tax return, many lenders will contact the IRS independently to ask for tax returns verified as accurate. At this point, the lender will compare the statements made by the applicant to the documents they receive from the IRS to make sure all disclosures are accurate. This is a vital moment for both the lender and the applicant as the application can only move forward when the lender is certain the income being reported by the applicant is accurate.

The lender is not only looking to make sure the tax returns have the same levels of income as reported by the applicant but they are trying to make sure an individual is a responsible person. This is seen by the applicant understanding the tax return they filed and having made sure the numbers match the loan application.

It usually takes between five and ten days for the IRS to mail a paper tax return to your potential lender as most groups tend to ask for the applicant to complete a form 4506-T. This is a form giving the IRS permission to mail your tax return to your potential lender. It is common for your lender to request the maximum number of returns from the last three years to gain a complete understanding of the financial position of the applicant.

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Are loans easier to get from a credit union?

Are loans easier to get from a credit union?

When looking for a loan, it is always smart to shop around and find the best option. Whether you are searching for the best interest rates or for the easiest and fastest way to get approved, a credit union might be the perfect option for you.

Credit unions are non-profit community institutions, which means they will not be trying to find ways to get as much money from you as possible. That is the main thing separating them from traditional banks. It is also one of the things that makes them so appealing when looking for a loan.

The fact that credit unions are non-profit means that they will not be looking to get a better profit margin on their loans, which means lower interest rates. Banks get a large portion of their overall profits from loan interest rates, so they are significantly higher. A lower interest rate on your loan will mean you are making lower payments on the loan, and the total amount you will be paying back will be smaller as well.

That is a good enough reason to choose a credit union for a loan, but as well as that there are the benefits specific to getting the loan. It is easier to get a loan from a credit union as they have less strenuous vetting than banks, which also means the time it takes to be approved tends to be shorter. If you have any issues with your credit, your debt, or any historical late payments on loans and other bills, a credit union will be much more willing to overlook these and give you the loan. Even if there are any issues, a credit union’s personal touch means you can talk to the workers there and explain the situation, and they will actually listen.

There are plenty of options when getting a loan, but in both price and approval chances, you can trust that a credit union is a good option.

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What Kind of Business Loans Are There?

What Kind of Business Loans Are There?

There are many sources of debt financing for your business. The common ones include banks, business creditors, commercial lenders, and credit card companies. Before you visit any lender, it is advisable to know the different types of loans available. Here are the most common ones.

1. Line-of-credit Loans

These loans are the most common and can shield your business from cash flow issues and emergencies. Line-of-credit loans provide help with operational, inventory and business cycle needs. You cannot apply for these loans to buy assets like real estate or equipment. The lenders charge interest for the loan until you pay it back fully.

Line-of-credit loans attract low-interest rates since they are low-risk. Some lenders, however, reserve the right to cancel the loan or reduce the loan limit depending on the situation. You have to pay the interest every month. The principal is typically payable within one year. Most lenders ask for financial statements, tax reports, and cash flow projections before approving the loan.

2. Installment Loans

Both the principal and interests are paid back with equal monthly installments. These types of loans suit different business arrangements and the interest is calculated from the day you receive the money to the last day of the loan repayment period. The repayment period may vary from a few months to 21 years depending on your business needs.

3. Balloon Loans

Different lenders give these loans different names. The applicant receives the full amount after signing the contract but only pays the interest during the loan period. The principal is due on the last day of the loan period. It is similar to an installment loan, but it is reserved for businesses that have to wait until a specific time to receive money from clients.

4. Interim Loans

Interim loans are reserved for paying contractors that build business facilities. The mortgage on the structure under construction covers the interim loans. Most lenders consider interim loans when they are concerned about loan payment and the commitment of the applicant.

5. Secured And Unsecured Loans

Loans fall into these two categories. If the lender trusts you and your business, they may write an unsecured business loan. There is no collateral or secondary payment source. You can only access secured loans if you are new to the lender.

If you need a business loan, your preferred lender can help you choose the right one.

 

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What is a good credit score to get a business loan?

What is a good credit score to get a business loan?

Although every lending institution has its own business loan requirements, which also depend on the type and amount of loan you are seeking, many will require a minimum credit score to consider the eligibility and trustworthiness of a borrower.

Each loan application is evaluated on its own basis, and each borrower is approved or denied depending on a combination of factors. Those include the number of years in business, the size of the enterprise, vendor relationships, annual revenue, steady profitability, and other criteria.

Business and Personal Credit Scores

The business credit score is separate from your personal credit score, and a potential lender will look at both, but the business one tracks the financial history and reliability specifically of your business. Most small businesses do not have a separate business credit score, and many lenders may not require one unless you are applying for an SBA loan or a longer-term bank loan.

Personal credit scores usually range between 300 and 850. To qualify for most small short-term business loans, you likely need a credit score of at least 550 but preferably in the 700s. The lower your credit score, the higher the interest rate will be.

Building Your Credit Score

You can improve your credit score by paying down existing balances and always getting your payments in on time every time. Newer businesses can start with a business credit card or a business line of credit, both of which are easier to secure than a loan.

0% Intro APR Business Credit Card

You can roll over the payments from month to month for a specified amount of time with no added interest. After the interest-free months, a variable APR is set at a rate that depends on your creditworthiness.

Business Line of Credit

A business line of credit gives flexible financing on a regular basis, and you only pay on the amount you use. If you repay on time, you can return to your line of credit as often as necessary.

Who will be accepted for a loan?

Only the borrowers that lenders deem the most reliable will be accepted because lenders want to loan money only to those who are capable of repaying on time and are dependable with their financial obligations. With a credit score being a measure of a business owner’s debt history, it is a good way to show that you are a worthwhile and trustworthy candidate.

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