Starting a new business can be quite challenging. It’s easier if you have saved money to invest in your business but most people who want to become entrepreneurs don’t have the capital to do so. If you want to make your dream a reality, then you need to find out if you qualify for a business loan.
Business loans are basically money that a financial institution grants to prospective entrepreneurs which need to be paid off at a specific time and with interest. It’s the fastest way to get the capital you need to start or grow your business. However, you need to be seen by the bank as a low-risk individual, which means that you need to prove that you can pay off the loan on time.
Credit score
Your credit score plays a huge part when applying for a business loan. Before applying for a business loan, it helps to see if you have a good credit rating by getting a free credit report from the three credit bureaus, which are Experian, Equifax, and TransUnion. Most banks will fund individuals for low-rate business loans who have at least a 680 credit score.
If you have a definite low credit score, you can get your credit report investigated to see if there are any mistakes. Banks will see you as a risky individual to lend money to if you have a low credit score. So, pay your bills on time. Another way to increase your credit score is to build it by using your credit card and paying your credit bills on or before the due date.
Proof of income
Even if you have a good credit score, financial institutions will want to know how you’re going to pay off the business loan you apply for. For this, you need to show your books to the bank to let them see how much you can afford to pay every month. The bank will also determine the amount of money to lend you by looking at your business’s projected monthly income and find the loan amount you can afford to pay off.
Collateral
Although an unsecured business loan is possible to get, it’s usually very hard to get. You need to have built a reputation as a good entrepreneur to have the bank’s trust to give you an unsecured business loan. If you’re only starting, you may qualify for a business loan if you offer the bank collateral for a secured loan. This way, they have property or equipment that they can seize if you fail to repay the loan to cover the loan amount.
