Business Loan Requirements

A business is defined as any organization that operates for profit and can take various forms ranging from sole proprietorships to international conglomerates.

A business loan is a form of debt financing that provides your company with funds. The terms and conditions that affect its repayment, such as loan limit, interest rate and repayment schedule.

Definition

Business loans are a form of financing designed to cover costs associated with running and growing a business. Like all loans, they incur debt that must be repaid over time with interest. There are different kinds of business loans with different loan amounts and repayment terms; some require providing collateral like equipment or real estate while others focus on credit history and its history of owners or management teams.

Business loans can be used for various purposes, from purchasing inventory before the busy season starts to expanding your operations in a new commercial location. Some lenders specialize in helping businesses with less-than-ideal credit histories get loans; you may need additional collateral or even personal guarantees in order to receive this type of financing. Other solutions available to you may include business lines of credit and merchant cash advances which use future credit card sales as collateral.

Purpose

Business loans are an efficient form of debt financing that can assist small businesses with everything from equipment purchases and property purchases to working capital needs. To successfully obtain one, it’s essential to know why and demonstrate consistent positive cash flow history.

There are various forms of business loans available, from traditional term loans to revolving lines of credit. Traditional term loans provide large borrowing amounts with interest payments over an agreed-upon loan term period. Revolving lines of credit provide access to ongoing capital without having to make major repayment commitments each time an influx of cash arrives at a business’s doorstep.

Revolving lines of credit allow a company to borrow, repay and then borrow again as needed. Invoice factoring provides advance funding based on outstanding invoices. While lenders have specific criteria that must be fulfilled before offering loans to new or established businesses, using a business loan broker may increase your likelihood of approval and save you money over time.

Requirements

No matter whether it’s a business line of credit or loan, in order to qualify, several requirements must be fulfilled in order to be approved for financing. While these specifications can differ depending on your lender and type of business loan agreement, some common items that must be met include:

Creditors review your personal and business credit histories to assess whether it’s likely you will repay their loans on time. Having good personal credit will enable you to qualify for more loan options at more favorable interest rates, with lower repayment costs.

Lenders will typically request financial documents like profit and loss statements, balance sheets and revenue projections in order to assess your ability to repay a loan. They may also require you to submit a business plan and provide collateral depending on the amount and risk level associated with your industry; for instance, some lenders do not lend to businesses which provide adult entertainment, drug distribution/product sales, money services or gambling services.

Closing

Once a business loan has been approved by underwriting, lenders will work closely with the borrower to close on the funding. Closing requirements vary based on how you use your funds; depending on their use they could require property valuation, environmental reports, title insurance policies and lien searches among others. Lenders often utilize checklists as a way of expediting this process and closing quickly.

Responding promptly to requests from lenders will help the closing process run smoothly and can shorten the time needed for funding.

Prior to beginning any loan closing process, it is wise to review all titles relating to an SBA loan where life insurance coverage is necessary. Failing this step could significantly lengthen the closing process if not taken care of early enough. CU Business Group also offers a Closing Loan Documents course designed to familiarize staff with what documents and information make up a typical loan closing package; an ideal training opportunity for managers, business loan officers, branch staff who will be closing loans with members.