How To Get the Best Business Loan
There are many loan options to pick from when securing financing for your business. It can be overwhelming, but that’s where Clarify Capital comes in. We learn about your needs and guide you in choosing the right small business loan.
Figuring Out What You Need
We aim to figure out why you need funding, how you will use it, and what loan amount you should seek.
Step 1: Why Do You Need a Business Loan?
The first step in securing a loan is identifying how you will use the financing from a business standpoint. Each type of loan serves specific business purposes.
Here are some reasons businesses acquire a small business loan:
- Coronavirus and pandemic assistance
- Growth opportunities
- Gap in accounts receivable vs. payable
- Short-term operational costs
- Emergency repairs
- Equipment purchases
- Material purchases
- Operating expenses
- Hiring new employees, training, and education
- Payroll and taxes
- Opening a new location
- Advertising and marketing
- Refinance existing debt
- Store improvements or renovations
- Overcoming unanticipated business expenses
Step 2: Identify How Much You Need To Borrow
Once you’ve figured out why you need to borrow money, the next step is identifying the loan amount. Every business would love an extra $50 million, but it’s best not to borrow significantly more than you need to achieve your business goals.
Here’s a simple way to estimate how much you’ll need:
- Take your list of reasons from step one above and jot down how much money each item would require.
- Try to be as realistic with the estimations as possible.
- Add them up, and see your loan options.
What’s Needed To Qualify for a Small Business Loan?Qualifications and requirements for small business loans vary according to the type of loan. Different lenders also have different criteria. For instance, SBA lenders and traditional loans from financial institutions like banks and credit unions tend to have stricter eligibility requirements. On the other hand, qualifying with online lenders can be more flexible and even offer business loans to companies with bad credit. Meanwhile, crowdfunding is typically open to all businesses.However, if you’re applying for any type of loan, there are three main requirements that lenders want to see.
Amount of Time in Business
The first thing that lenders will want to know is how long your business has been in operation. Loan providers use your time in business to assess your creditworthiness and the risk of lending to you. The longer your company has operated, the lower its risk is typically considered. Most lenders require that you be in business for at least six months to qualify for business loans.
Another main requirement when applying for a business loan is a record of your business revenue. Most lenders want to see some sort of substantial and consistent annual business income before they give you a loan. In addition, they want to know if your company has the consistent cash flow to pay them back. Your annual revenue also helps lenders calculate the maximum amount you can borrow.
Lastly, lenders want to know your credit score. SBA loans and traditional bank loans require excellent to good personal credit scores to qualify for small business loans. But online lenders can be more lenient and will also consider your company’s cash flow and growth projections.
However, to qualify for most business financing options, you must have a certain credit rating. FICO scores are commonly used in lending decisions ranging from 300 to 850. When it comes to credit scores, the higher, the better. Credit scores are calculated by considering your payment history, the amount of debt you have, and the length of your credit history. A higher score means you have been responsible for your debts.
Another advantage of a higher credit rating is that it can help you get better interest rates and repayment terms. On AnnualCreditReport.com, you’re entitled to a free annual credit report from each of the three credit reporting agencies: Equifax, Experian, and TransUnion.
You may have a business credit score if you have a more established company. There are four main commercial scoring systems — Experian, Equifax, FICO, and Dun & Bradstreet — and their ranges vary significantly. If your score is low, taking out small business loans or starting a line of credit and using them responsibly can help you improve your business credit rating.
Other Lender-Specific Qualifications
On top of the above criteria, banks and lenders tend to ask for other documents when you apply for a loan. Some additional lender-specific requirements include:
- Legal documents. Some legal proofs you might be asked to show are a valid ID, such as a driver’s license or passport, your federal tax ID or employee identification number (EIN), and a copy of your business license.
- Financial documents. You may also be asked to provide information on your personal finances and any personal loans you have. It’s best to have your personal and business income tax returns ready. You may also need copies of your personal and business bank statements and to disclose any leases under your name or your business.
- Business financial statements. Depending on the loan you’re applying for, you might be asked to present two to three years of balance sheets and income statements for your business.
- A written business plan. Some lenders will want to know that you have the means to repay them, so they may require that you write a business plan. The plan should detail how you plan to use the money and how you expect it to increase your profits. Increase your chances of getting a loan approval by including information demonstrating you can cover operational business expenses and the new loan payments.
- Collateral for secured loans. If you’re applying for a secured loan, make sure you understand the terms of the loan and have the necessary documents for the collateral. This makes the verification and loan application process easier for you and the lender. Collateral could be business assets like equipment, vehicles, machinery, commercial real estate, inventory, or accounts receivable.
Prequalify for a Business Loan
Clarify Capital Makes Getting a Small Business Loan Simple
At Clarify Capital, we understand that getting a loan is sometimes essential for a business’s growth and survival. We also know you’re busy and don’t have the time to search across hundreds of lenders to find the right funding option for your business needs. That’s why we make the process quick and easy for you.
We offer fast and transparent applications that can be done in as little as two minutes. Apply online or call us directly at (877) 838-3919. There’s no fee or obligation.
Our mission at Clarify is to help you pursue your business goals by getting the funding you need to meet your current financial obligations. We work with more than 75 lenders to get you the best rate and partner you with an experienced adviser to help you choose the best financing option based on your needs and specific business goals.
Once you’ve submitted your loan application and are approved, you’ll get access to the loan proceeds in as little as 24 hours. Your adviser will continue to help you achieve success every step of the way.
Small Business Loan FAQ
You can apply for a small business loan in just a few steps. Simply fill out an application online, and a Clarify lending adviser will help guide you through the entire process.
Lenders look at a few main factors to determine eligibility. For the best odds of approval, you’ll want a credit score of over 550, be in business for at least six months, and earn a monthly revenue of at least $10,000.
Interest rates depend on a number of factors, with credit score typically being a main consideration. At Clarify, we offer competitive financing. Annual percentage rates start as low as 7%.
The term length depends on the type of loan and your specific requirements. At Clarify, we can work with you to find a loan duration that matches your needs. On average, the range is between one and three years.