Are you a small business owner surfing through the current economic tsunami or need that business funding to expand operations, equipment purchases, or finance inventory? Have you considered alternative small business funding but are too confused to make the first move?
We completely understand your uncertainty. Therefore, we decided to take some time to dig into some requirements that you’ll need to consider when looking for loans and alternative business funding. Check them out and get moving. Some of the steps to qualify for small business funding are the following:
1. Check what type of funding you need
As a business owner and entrepreneur, getting the proper business funding for startups and old businesses is a serious concern. We’ll explore some common types of financing that business owners use to access working capital.
As a business owner and entrepreneur, choosing business loans for startups and old businesses is a serious concern. Below we’ll explore some common types of alternative small business funding available for you:
a) Short-term business loans: These traditionally structured banks or credit union loans provide a specific amount of money at a fixed or variable interest rate for a set period. They typically come with favorable conditions, but their requirements are strict.
c) Lines of credit: People with a strong credit history may qualify for an unsecured line of credit. Secured lines of credit are also available, but you will likely need to put down collateral worth at least as much as the loan you hope to secure.
d) Personal loans: A personal loan is a transaction against your name. Getting a personal loan means you won’t need to submit a detailed business plan. Also, this typically means that you won’t be able to get as much money as you would if you applied for a business loan or other alternative funding options. And your credit score will be affected if you can’t pay the loan back by the agreed terms. You can get it through a bank, a credit union, or an online lender.
e) Merchant cash advances: These sources are fast and reliable regarding access to business funding. Alternative funders offer products specifically designed to meet even the smallest business’ needs. Business owners don’t need perfect credit scores to qualify. Instead, funders will look at their business potential for growth. Merchant cash advances adapt to how much revenue a business makes. If you want to learn more about it, you can read: How does a merchant cash advance work?
2. Develop a strong business plan
Most funders will want to know how you plan to use the money. So make sure to build a strong business plan and give funders more confidence in your business.
Also, if you determine how to invest in your business growth effectively, you will be able to decide how much you need and, most importantly, how much you can afford to borrow. Your plan should include the most current and projected financials to demonstrate that your business will have enough cash flow to cover ongoing expenses and payments.
We recommend that your plan includes: a brief description of your company, service, and product; a market or industry analysis; facilities and operations plan; marketing and sales strategy. Last but not least, a SWOT (strengths, weaknesses, opportunities, threats) analysis could also shed some light on where you are right now and how you'll get there. Get more insight into "The ten key elements you must include in your business plan."
3. Determine your chances of getting approved
Before you apply for funding, it’s essential to understand how funders will evaluate your application. They might look at your credit score and history, cash flow, time in business, collateral, industry, and loyalty. Filter your initial applications and only apply to those where you are most likely to find success.
For example, SBA loans ask you to be current on all government loans with no past defaults. You’ll be disqualified if you’ve been late on a federal student loan or a government-backed mortgage. The SBA and bank loan qualification process will require a hard inquiry on your credit report. So, save your visit to the bank if your credit score is less than 700, and forget about SBA loans if your credit score is below 640.
Related lecture: How to get a small business loan with bad credit.
4. Prepare your documents
Depending on the type of business funding you’re applying for, paperwork requirements vary. At the bare minimum, you will be required to show the funder that you have the means to pay back.
When dealing with bank or union credit, you should expect to provide balance sheets, profit, and loss statements, personal and business credit reports and income tax returns, bank statements, business licenses, franchise agreements, and sometimes quotes from contractors and vendors.
Banks typically want to see three to five years of your income tax returns and potentially your business returns. You’ll need to create (or, much better, have your accountant make) monthly or quarterly financial projections for the next year, then quarterly and yearly predictions for the term of the loan. And you’ll need to provide your personal and business bank statements for the past 12 months.
The bank may want to see your business licenses and registration, insurance, leases, articles of incorporation, third-party contracts (with suppliers or customers), franchise agreements, and similar information.
You will also need to bring proof of collateral, showing that you own the assets you will pledge as security for repaying the loan. Documentation could include titles, contracts, deeds, and receipts. The bank may also ask for valuation proof, such as insurance coverage.
Alternative funding options like merchant cash advances typically ask for fewer requirements. You can complete the process online if you opt for one of One Park Financials’ funding programs. Also, they’ll work with businesses that have been open for three months or more and generate $7,500 in revenue.
Congrats! Now that you read some of the qualifications needed to access a business loan or any commercial funding, it is time to begin the application process. Remember that depending on the funder and the type of loan you select; you may have to visit a financial institution or call the funder to check the basic qualifications.