What Lenders Look for on a Small Business Loan Applicationinstallment loans direct lenders
A short-term loan typically needs to be repaid within one to three years, while a mid-term loan usually has a two to five-year repayment period. The eligibility requirements, interest rates, and loan amounts of each type can vary. Carefully think about what repayment time frame works best for your needs as a business owner, and the repayment terms’ impact on the overall cost of any loan you accept. For example, the repayment terms for short-term working capital loans from National Funding will not exceed 12 months for your first loan, with renewals extending up to 15 months.
Interest and Fees on Open Balance
Assess how much interest and fees youвЂ™ll be charged on open balances. If you take out a longer-term loan, the amount you have to pay each month may be lower. However, you might wind up paying more in the long run. If you take out a short-term loan, youвЂ™ll probably have higher payments but less total interest on the loan.
If a lender doesnвЂ™t extend financing in the amount your business needs, consider turning to creative funding sources. Or, look for ways to cut costs and reduce the total amount you need. Even if you obtain a loan for less than you originally wanted, securing an initial loan can help you build better credit and potentially secure more funding with a second loan or renewal later on.
What additional factors matter to a lender besides credit scores? Banks tend to request more information, while online and alternative lenders require less. At National Funding, for example, we ask for limited information in order to provide better speed and service. We generally look at a business’s annual revenue, cash flow trends and credit history of both the business and the owner.
Your businessвЂ™s annual revenue is one of the most important eligibility factors for bad credit small business loans. If youвЂ™re approved for a loan, the amount youвЂ™ll qualify for will usually be around 8% -12% of your businessвЂ™s annual revenue.
Even if your annual revenue is high, some lenders will also want to know if your business is profitable. Your business doesnвЂ™t necessarily have to be profitable in order to qualify for a loan, but your chances of approval could be increased if it is. If your business has demonstrated significant growth in the last 3 months or more, it could improve your chances of securing a loan even more.
Current Debt Obligation
If you already have a business loan, you may have difficulty obtaining another one, especially if your original lender placed a UCC lien on your business. For some lenders, approving you for a loan even if you already have one with another lender wonвЂ™t be an issue. However, there are risks to your business and credit if you take on more debt than you can realistically and responsibly pay back.
Your ability to manage the cash flow of your business may be an important factor to lenders. After all, every lenderвЂ™s primary concern is your ability to make loan payments. By demonstrating that your business makes and has enough money to afford payments may improve your chances of qualifying.
Most lenders will examine your credit report to determine if youвЂ™ve ever had a bankruptcy, foreclosure or another red flag. But remember, poor credit doesnвЂ™t automatically disqualify you from getting the money your business needs, especially with lenders like National Funding who offer small business loans for bad credit.
National Funding does not require it, but some lenders may want to review your business plan to better understand your business. Business plans may show lenders a variety of things that set your business apart, including: