If you’re the owner of a relatively new business, as it grows, you’re likely to find that taking out a loan can help you take advantage of new opportunities to support a successful future. While small businesses have more financing options today than ever, navigating the many lenders and types of loans available can be complicated.
Finder.com reports that just 40% of business owners in the U.S. applied for a loan in 2017, down 5% from the previous year. Less competition generally means a better chance to get approved for the full amount you’re looking for, but here’s what you need to be aware of when applying for the best odds.
You Need to Have a Good Personal Credit Score and a Positive Business Credit Profile
As the business owner, just like you would if you were applying for a mortgage on one of the townhouses in Charlotte, North Carolina or a house in Houston, Texas, you’ll need a good personal credit score. While various lenders often look at that score differently, in general, a score that’s below 680 will make it challenging to get approved for a loan at a bank, while a score of under 650 will make it difficult to quality for a small business loan.
Many business owners aren’t unaware of what their business credit profile tells lenders, but you’ll not only need to focus on maintaining or building a strong personal credit score, but a strong business credit profile as well. That means having a business banking account, opening up trade lines with suppliers, obtaining a business credit card, borrowing from lenders that report to business credit bureaus and paying all of your business’s loan payments and bills on time.
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Business Lines of Credit
If you’re a startup, a business line of credit is one of the primary kinds of business loans you’ll have better access to. It will provide your business with a revolving credit limit that allows you to withdraw funds as you need them. Fr example, if you need to purchase $2,000 worth of inventory but you’re still waiting on several clients to pay their invoices, so you don’t have the capital just yet. With a business line of credit, you could withdraw the $2,000 and then pay it back gradually over the term length.
To get a business line of credit you’ll typically need to have been in business for at least six months and be earning a minimum of $50,000 in annual revenue.
Don’t Just Go to Your Local Bank: Shop Around
There are many lenders and many different types of lenders. While business owners often think they can get the best interest rate and repayment terms from their local bank, local banks aren’t always interested in lending what you need for your small business. Be willing to spend time researching your various options to find the best fit. While you should look at non-traditional lenders too, be sure to delve into their reputation and history to avoid borrowing from a company that’s disreputable.