Many small business owners today are finding that qualifying for bank financing is not easy. Even if you are using non-traditional lenders, these are important things to know before approaching them. Having great credit scores and tangible assets does not necessarily mean you can get the loan amount you need.
Traditional lenders must follow strict guidelines in their lending procedures that small business owners might not be aware of. As for non-traditional lenders, they have also tightened up their lending guidelines. It is important to know what questions these lenders might and can ask. The questions below will assist you, the business owner in knowing what the lenders are looking for before you complete their application.
Here are six questions to consider:
1. What is the minimum credit score they require?
Be sure to check your credit report and get your credit score prior to asking this question. This will let the small business owner know immediately if they can qualify for the lender’s loan based on their credit score and report. When you review your credit report, you can tell if there are any discrepancies you might want to tackle before going to the lender. It is useless to know what the lender requires when you do not know what is on your credit report.
2. What is the minimum or maximum amount the lender will finance?
It is important to know the maximum or minimum loan amount the lender will finance. If you are seeking a large loan and that lender does not lend at that level, you would have wasted your time filling out their application. So be very mindful of the amount they will or will not finance.
3. Do they accept applicants with bankruptcy on their credit?
You must find this out if you have ever filed for bankruptcy or thinking of doing so. It is important to know this before approaching a lender for financing. In most instances, you cannot get funded. Some will only accept you after a seven (7) to ten (10) year period have passed depending on the type of bankruptcy chapter you filed. Some non-traditional lenders will not finance you if you have had a bankruptcy less than three (3) years old. Be sure to ask this question before going forward.
4. Do they require a business plan?
In most instances, they will require a Business Plan and an Executive Summary before they will even look at your application. The list of documents they will require should tell you immediately what they are looking for, so be sure to ask for this before you do anything else. Find out what are the mandatory requirements on their list of documents. So, if you do not have all of the mandatory items, you will know that you cannot go further.
5. What is the minimum number of years in business the lender require?
For start-up enterprises, which are less than two (2) years old, banking institutions cannot finance you. If you receive a loan from a bank it means that you personally received that loan and it was not based on your business. The banks need to have past historical data on your company for at least two (2) years or more, and as a start-up, you cannot provide that information. You can receive a loan through some micro or other non-traditional lenders who have a minimum of one (1) year in business. This is not the case for all lenders, so know your source before you waste your time and theirs. It is very important to know the answer to this question.
6. Does the lender finance your industry type?
This is a vital question every business owner must ask. If the lender does not finance your industry type, you do not want to waste your time and theirs by completing their application. Some banking and non-traditional funders finance specific industries. For example, if your small business is in the medical or construction field, you would not want to be applying to a lender who finances agricultural clients only. So, it is imperative to know what the lender’s specialty is.
There are many more questions you can ask, just remember, all lenders, whether traditional (banking and other institutional lenders) or non-traditional (alternative funders, private lenders, angel investors, etc.), all have their own niche markets. In order to make the funding process easier for all, know your lenders before approaching them for a loan.
About Author: Karlene Sinclair-Robinson is the author of ‘The Small Business Owner’s Guide to Alternative Funding: What The Small Business Owner MUST Know To Get Through These Financial Times’. Sinclair-Robinson is an Entrepreneur, Business Consultant, Alternative Financing Expert, Speaker and Motivator based in Northern Virginia. With access to capital, Sinclair-Robinson focuses on consulting services and non-traditional financing Solutions for small to mid-size businesses.