Do you qualify for finance?

Do_you_qualify_W.jpgBusiness loan requirements vary depending upon the lender. To speed up the process, speak to the lender before you apply.

We’ll go through the most common requirements here.

Credit score

What’s your credit score? Understanding your business creditworthiness is a great practice in general. But it’s especially important if you’re planning to take out a business loan.

Lenders will base their decisions, in part, on your credit rating.

Once you submit your business loan application, lenders will access data about your credit history from the credit bureaus. There are indicators that influence your credit rating, and these include:

  • Your current levels of debt
  • Your payment history.

Garth Rossiter, Lulalend’s Chief Risk Officer, emphasises that "it’s important to maintain a good repayment history on long-standing accounts."

What’s a good credit score to get a business loan?

There’s a lot of focus on personal credit scores when it comes to business loans. Truth is, these personal credit scores are usually only one of several factors considered when lenders determine your business credit score. However, a poor personal credit score will work against you.

Typically, between 640 to 700 is a good personal credit score. A higher score means lower risk.

Here’s a quick guide to personal credit ratings (ranges will vary depending on credit bureaus):

  • 700+: the best rating you can achieve. This is considered a very good to excellent rating
  • 660+: a good credit rating, where you can access a wide range of deals
  • 620 to 659: you might struggle to get finance if you are in this range, but getting a business loan is still possible
  • Below 620: this is a score most lenders would see as high-risk. It might be worth rebuilding your credit score before you apply for a business loan.

If you’re applying for a business loan, your personal credit score may be considered along with several other assessment criteria. Lenders are rating your business. And your personal score is just a single data point they might take into account when they model your risk.

Collateral

Has your business loan been rejected because of a lack of physical collateral? A lack of collateral is among the most common problems facing SMEs on the hunt for a business loan.

Examples of physical collateral include:

  • Equipment
  • Real estate
  • Vehicles
  • Stock.

Because SMEs are perceived as a higher credit risk, banks typically demand valuable assets as collateral. Plus, the lender will often value your assets for far less than they’re actually worth. That’s because the funder will be saddled with the costs of selling the assets.

The problem with this approach is obvious, explains Rossiter: "Many SMEs don’t have access to physical collateral. But they have good cash flow."

No collateral? You still have options. More and more funders are offering unsecured business loans or will waive the need for collateral if you have a purchase order. And most fintech lenders don’t require collateral.

Time in business

Nearly every type of business loan provider cites time in business as a critical requirement.

For traditional lenders this typically excludes business owners who have only been operating for a few years. Fintech providers usually only require 1 year of trading.

Annual revenue

Most business loan providers will have set minimum revenue requirements. This differs from lender to lender, but again is often lower for fintech lenders.

Next steps?

Start by gaining insight into your business. When and why do you need cash flow? Then thoroughly research the market for the type of loan and lenders that best meet your business’s needs.

 

Originally published on Ecommerce.co.za.

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