Smart Ideas: Financing Revisited

Tips for Choosing the Right Commercial Loan for Your Small Business

So you’re planning to get a commercial loan. Before you get into the loan application process, step back and consider which options are suitable for you, depending on your business’s financial status, the stage of growth your business is in, and your goals, both immediate and long-term.

Remember the following as you determine which type of commercial loan is the best for you:

Yearly Income

Your revenue per year is a critical indicator of your eligibility for a commercial loan. Before they approve your application, lenders will want to be sure that you have enough incoming cash that allows you to cover your loan payments, aside from all your operating expenses. Be ready with your recent Profit & Loss Statements and your tax returns, personal and business, as they will ask for these documents for verification.

Bank Balance

Earning revenue is only one part of managing a successful business. Money management is as important. Lenders want to be confident that whatever issues threaten your cash flow, you are able to maintain a safe cash buffer to keep the business from collapsing. You may boast exceptional sales, but if your bank balance is low, lenders may still be doubtful of your ability to repay your loan.

To boost your chances of passing the underwriting process and having access to wider options, be sure to have at least three months’ worth of your operating expenses, and that should include your loan payments. Lenders will assess your latest bank statements while calculating your average bank balance, before determining whether or not your business can survive while you repay your loan.

Longevity

As far as any lender is concerned, the risks of funding a younger, untested business are far greater than if they were to lend money to an established company. Clearly, a business that has been around for years is more stable than one that is yet young and have so much to prove. Truth is, only 50% of small businesses survive beyond the 5-year mark.

Credit Score

Lastly, in terms of commercial loan underwriting, an applicant’s personal credit score is generally the most critical requirement. Lenders conclude that the way you manage your personal finances is also the way you manage your business finances. Thus, your personal credit score will always be a huge factor in terms of your eligibility. Make sure this number is kept high for your benefits.

Your personal credit score is basically proof of your trustworthiness as a borrower. It affected by a lot of factors, like late payments, inquires, bankruptcies and the rest.

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