Opening a business without having money seems to be challenging. But sometimes, having an idea is enough to start your way to business ownership. Lenders now can support your initiatives and help your dream to come true. Learn more to know how business loans work.
What Is a Business Loan?
Business loans are the type of borrowing that can cover almost all the needs a person can face while starting his own business. Generally, the most common expenses are renting or purchasing real estate, equipment, insurance, sales and marketing, employment, and salary costs. Business loans usually have terms from 24 to 60 months, but some lenders offer loans up to 300 months. You can also apply for a short-term business loan with the terms from 3 to 24 months if it is comfortable for your budget.
Monthly payments are repaid in installments. The loan amount plus interest rate is divided into equal parts between the number of months of the loan term. Depending on the lender, you can borrow from $5,000 to $10,000,000.
What Are The Basic Requirements for Getting a Business Loan?
The requirements depend on the lender and the type of loan you choose. Most traditional lenders usually pay attention to the information in your credit report to see your financial history. That means you have a lower chance of getting a loan if you have a poor credit score. However, some lenders also offer higher rates for those with bad credit. In this case, you can try to apply for loans from direct lenders that usually look only at your ability to repay the money but not at your credit history.
There is no generally set minimum for a FICO score you must have to get a business loan. Some traditional lenders offer funding with a minimum 500 credit score, while others require a minimum of 660 to lend you money.
There also can be annual income requirements you must meet to get a loan. Some lenders also offer secured loans. That means you can only get a loan with collateral as a condition of borrowing.
What Are The Documents Required?
If you decide not to wait till later, you should gather the necessary documents. Your lender more likely asks you for:
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Your ID;
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Bank statements;
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Tax returns;
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Income statement;
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Employee Identification Number;
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Balance sheet;
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Budget and Future Cash Flow Projections;
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Business plan;
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Copy of your commercial lease;
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Accounts payable and accounts receivable aging;
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Other mandatory documents.
If you’re going to apply for an online loan, all you need is your ID, income statement, and active checking account information. But be ready that such loans usually offer higher interest rates and shorter terms.
