When you want to own your business and stay in business, your reputation is of up most importance as much as your type of business and its potential profitability.
The most important factors which will influence the decision to grant you a small business loan are:
1. Character – your reputation is important, recommendations from business partners and extensive experience in the field is important.
2. Capacity – this is where the lender will analyze your monthly cash flow and present expenses and your projected figures to ascertain that you can pay the monthly installment of the awarded loan.
3. Credit – your personal credit score will be considered, your reputation as a good payer back of previous loans or credit card bills is important.
4. Capital – this is the amount you are asking for – the lender will want to know exactly how do you want to utilize the money borrowed and usually there is a percentage limit to the amount borrowed versus the total worth of the business.
5. Collateral- this is the value of other assets the owner of the business might have to be used a a guarantee that the loan will be paid. The collateral is only significant in secured loans.
6. Conditions – this is referred to as the terms and duration of the loan as well as the special conditions imposed by the lender to the way the loan can be utilized.
As seen above, there are many requirements one will need to pass before a bank will award a small business loan. As mentioned, there are secured loans and unsecured loans.
Unsecured loans usually is given for example, as a credit card maximum amount to be borrowed and this can be a substantial amount if coming from multiple credit cards. The only requirement for this is an excellent credit score of 750 or above. A down side of this type of unsecured loan is usually the higher interest rate, unless you can find an opportunity for 0% interest rate for one year as banks were offering recently.
A secured loan, will be a loan backed up by personal real estate you own, or a valuable car, a long term certificate of deposit or other valuable possessions you might have aside from the business you want to borrow for.
Lets take a more detailed look at how and from what sources a small business loan can be obtained.