Many businesses need a loan for start-up costs and to continue in their operations once they begin. Many banks and financial institutions want to provide an enterprise with the funds that they will need to be successful. After all, if a business is successful, then a lender will make a profit. Even though lenders like to provide loans, they are not going to give funding to any organization just because they ask. All businesses must meet specific requirements if they want to get a loan. The following information will detail some common loan requirements which are usually requested by all lenders.
Good Business and Personal Credit
Lending companies typically will not make loans to organizations or people with a bad credit history. A person’s credit history is usually a good indication of their ability to repay a loan. If a business has a history of late or missing payments, this too will affect their ability to receive funding. Any entrepreneur that is about to start their business should make sure that their personal credit is in order. If not, they too will not receive the funding they need from a potential lender. All businesses should make sure that their credit rating is in good shape before asking for a loan.
A business owner must have a solid business plan to present to a potential lender. Most lenders require business plans so that they can quickly evaluate a business’s ability to pay back loan. They also want to make sure that they are investing in a credible and low risk enterprise. There are some businesses that many lenders avoid. Enterprises such as insurance companies, gaming businesses, and illicit (sexual) enterprises typically fall into this category.
A business plan will quickly reveal if a business is feasible and if it is profitable. Lenders understand and know that all business loans come with a certain amount of risk. Owners should make sure that their business is an approved type to get a loan. Their business plan should outline realistic data about financial information.
Assets and Loans
Many lenders (but not all) require a business to have personal assets which will be used to secure a loan. A business wants to make sure that if an enterprise defaults on a loan, they can recoup their losses. Acceptable collateral includes office equipment, machinery, and even intellectual property, if it’s applicable. The bottom line is that a borrower must make sure they have the approved collateral that a lender needs to get a loan.
Other Types of Loan Requirements
Borrowers could be required to have an annual cash flow projection, marketing information, a personal resume, and/or industry experience. A lender might require more information and some might require less. This is why a borrower should check with a lending institution to figure out a business’s loan requirement. This information will be able to save borrowers and lenders a lot of time, and hassle with approving or disapproving a loan.