A lot of lending companies offer secured and unsecured loans to entrepreneurs who want to expand and improve their business empires.
That said, while it can be pretty easy to apply for a small business loan, getting approved is another matter.
A lot of loan lenders crack down on a wide array of factors while assessing a loan application to determine the lending risk of a small business.
For this reason, it becomes vital for small business owners to know the main factors that affect small business loan applications in order to avoid issues during the application process.
Here are the four factors affecting small business loans.
1. Credit Score
If borrowers lack a good credit score and firm credit history, they might find it extremely hard to succeed in a loan application.
A lot of small business owners do not meet the criteria and borrowers that have a low credit rating often find options limited when searching for loans.
However, those with an excellent credit rating can normally get a business loan from banks and individual lenders alike.
In short, if your credit score isn't significantly high, you'll more than likely have to work with an alternative loan lender such as ourselves, who are far more understanding and accepting than the banks.
2. Age of the Business
A company that has been operating for 24 months or less is regarded as a startup.
In general, startups aren’t qualified for loans. This is due to the high casualty rate of startups, and lenders need companies to be operational for two years to qualify for the loan.
The market for alternative lending has altered the standard. Companies operating for 3 to 4 months are able to get financial support. The amount of money offered is based on the monthly income of the business.
The longer you've been operating, the more choices of loan available.
A company which has been going for 24 months or longer will have a high possibility of getting funding.
If you've been operating for less than 24 months, you'll need to pay a high APR from an alternative lender just because you're regarded as high risk and will have such limited choices to select from.
Our advice would be to avoid this at all costs.
This will assist in avoiding shelling out a premium for any funds borrowed and is a little short sighted.
If you do borrow money before hitting the 24 month mark, ensure your maths is done properly and the high cost will not stop or affect your operation from a low flow of monthly income because of paying back the money.
3. Monthly Financial Statements
Simply put, if you can't prove that you can pay the loan back each month, you won't receive the funds.
You'll therefore need solid proof of your business' monthly income in the form of financial statements.
Before applying then, make sure you get these documents together as your lender will need them before going ahead with your application.
If you do have any questions about the paperwork required to apply for a business loan here in the UK, feel free to get in touch with our team and we'll be more than happy to answer your questions.
Another factor affecting business loans is collateral.
Most of the time, loan lenders don’t offer unsecured loans to a small business to keep away from the high lending threat.
They decrease lending threat by needing the small business owners to utilize his or her possessions as collateral to protect the business loan.
If you fail to repay the loan, the lender can recuperate the credit by means of seizing your collateral.
There are many kinds of collateral which can be utilized to help small business owners get a loan. These include:
- Cash Deposits
- Home Equity
- Invoice finance
- Inventory finance
Thanks for reading. Love Finance is the fastest lender in the UK and our automation software guarantees you a decision, in minutes, not days. If you're looking for funding to grow and expand your business, click below to apply now.