With that said, not all of these loans are created equal, which is why research is so important. The downside to all of these loan options is they are difficult to obtain. Below, you will discover four facts about small loans that you may not know about.
Approval Is Always Difficult
Obtaining a small business loan is far from being easy. If you have been told in the past that these loans are easy to obtain, you were fed the wrong information. Banks generally offer small business loans with affordable terms, which is why young entrepreneurs are drawn to them.
In order to be approved for a small business loan offered by a bank, your company must have been in business for at least two years. If you cannot meet this criterion, you may as well start looking for other funding options.
Another reason why small business loans are so difficult to obtain is that the borrower must have $250,000 or more in annual revenue. This criterion excludes most small businesses from getting approval for a small business loan.
Other requirements include strong collateral, homeowner and good business and personal credit. If you apply for a loan through your local bank or SMS loan, you must be honest and complete the application to its entirety.
SBA Applicants Are Very In-Depth
Banks take extreme measures to protect themselves from unpaid loans. And, sometimes the measures taken are just not enough. One way banks do this is by making borrowers jump through hoops. If you request a small business loan application, you will immediately be taken aback. There are so many questions that need to be addressed that the average application is several pages long.
Borrowers are required to provide the lender with lots of information. This information includes your FICO score, balances on credit card accounts, list of your liabilities and assets and record of payments that were made on time.
Borrowers Are Not Required To Be Debt-Free
Fortunately, banks do not require borrowers to have a debt-free status. However, they do expect the borrower to have stable annual revenue. Basically, you will need to earn enough money to pay your existing debt and the small business loan you are applying for. So, you will have a better chance of getting approval if you only have a few debts. But, you will still need a healthy cash flow.
Lenders Are Unique
Contrary to believe, lenders that offer small business loans vary considerably. These lenders include credit unions, savings and loans, and banks. One thing these lenders do have in common is they must comply with small business loan guidelines.
If you are fully prepared and meet the criteria of a small business loan, you could very well get approval on the first attempt. Just because you are turned down by one bank does not mean you are totally out of luck. Make a few changes and try again.