Most small business owners will need to apply for a loan sometime in their career in order to start or expand a business. No matter what kind of loan a business owner wants to apply for, he or she is going to need a lot of the same information. This also holds true for Small Business Association loans.
Improve Your Personal Credit Score
A business owner needs a good personal credit score to qualify for most loans from banks or SBA loans. The average bank will want a business owner to have a minimum credit score of 680. People who are applying for SBA loans can have a little lower credit score to qualify, at around 650. Anyone who has a score lower than these two needs to focus on improving his or her personal credit score before applying for a business loan. Individuals can improve their personal credit scores by paying off other loans and debts (credit card debt, for example).
Improve Your Business Credit Score
Once a business owner’s personal credit score is in check, it’s time to focus on improving his or her business’s credit score. A business credit score operates separately from the business owner’s personal credit score; in other words, one does not have much (if any) effect on the other. Business owners who are just starting out will likely have low business credit scores. This does not mean the business is failing; it is usually a sign of a limited credit history. To build business credit history, business owners can buy things on credit or use a business credit card. Paying off other business loans can also help to improve a business’s credit score.
Document Your Annual Revenue
Regular business loans and SBA loans will both require proof of a business’s financial history. The longer the business history, the better. New businesses should have about six months of financial records in order to apply for any kind of business loan. The better the business’s financial records are (the more consistent profits a business makes), the better loan terms a business owner is likely to get. If the business is less than six months old, business owners should contact their bank to find out what supplemental financial documents they should use.
Applying for any kind of business loan takes a lot of time, effort, and paperwork. By getting these three things in check first, business owners will be able to save themselves a lot of trouble later down the road.