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As a small business, it can be challenging to apply for a commercial loan. With proper preparation, qualifying for these loans may not be as difficult as you thought. Small businesses in the United States have the ability to apply for what is known as a SBA (Small Business Administration) loan. The SBA loan is a government-backed loan provided by banking institutions that provides lower interest rates and a higher chance of approval.
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How to Qualify for a Commercial Loan As a small business, it can be challenging to apply for a commercial loan. With proper preparation, qualifying for these loans may not be as difficult as you thought. Small businesses in the United States have the ability to apply for what is known as a SBA (Small Business Administration) loan. The SBA loan is a government-backed loan provided by banking institutions that provides lower interest rates and a higher chance of approval. Whether you choose to apply for a SBA loan or another commercial loan, there are five essential priorities you are going to have to focus on. These include: building your credit score, knowing the qualifying criteria, getting your documentation together, putting a winning business plan together and providing collateral to reduce your risk to the bank. You will first need to focus on improving your own personal credit score and that of your business. Your personal credit score is taken into consideration to ensure that you repay your own personal debts in a timely manner. This says a lot about your character and how you will manage your business finances moving forward. The higher your credit scores the higher your chances of a successful application. Not all banks use the same credit score provider, but in most instances the lending decision is based on payment history, debts outstanding, length of time you have had credit, types of credit and any recent credit enquiries on your name and your business name. Get a copy of your credit report to ensure you have a good score before considering applying for a commercial loan. The next step is to know the qualifying criteria of the bank you are thinking of using for your commercial loan application. It’s essential to meet all the minimum requirements of the lender to make your case stronger and push you closer to approval. Some lenders will allow for some flexibility, but not quite meeting the criteria can involve an increase in interest to reduce the lender’s risk. If you are thinking of a Small Business Administration loan for your commercial loan option, then you will need an excellent personal credit score, strong business revenue, no past due government loans and no past defaults on government loans. There are some businesses which cannot qualify for this type of loan, it’s important to ensure your business doesn’t fall into this list. Further, your business must make a profit in order to be considered for a SBA loan. Your next step in qualifying for a commercial loan is to get your documentation together, including legal and financial documents. The most common documents your bank will want to see are personal income tax returns, business tax returns, balance sheets, income statements, personal bank statements, business bank statements, commercial leases and business licenses. You will also have to include articles of incorporation, financial projections and a resume to show your experience. From here you will need to put a winning business plan in place. Your business plan is what gives the bank insight into your business from what you do to how you intend to make money to repay the loan, along with forecaster projections. A business plan must include a description of
the company along with a description of products and/or services. It should provide insight into the management team, along with a thorough industry analysis and operational plan. Ensure you include a list of your business strengths, opportunities, threats and weaknesses along with a full marketing and sales strategy. Not all businesses have something to put down as collateral. Collateral can be your business premises, equipment or inventory. As a small business you may not have enough collateral or qualifying collateral, this is why so many smaller businesses choose the SBA loan option, where the government becomes their collateral. About Us: CalPrivate Bank, formerly San Diego Private Bank is a leading private bank serving clients throughout Southern California in the United States. This very well-established bank services high net worth individuals and businesses of all sizes. CalPrivate Bank’s focus is to provide a Distinctly Different Banking Experience through unparalleled service and creative funding solutions for individuals and businesses with complex financial needs. They offer a wide array of financial services, including checking, savings, time deposit accounts, treasury management and related tools. To find out more, visit https://calprivate.bank/.
