A bank business loan is perhaps the safest small business loan to secure. Banks tend to have the most predictable rates, the most level terms and the lowest possibility of being bought or sold. In exchange for the stability offered by a bank loan, you will have to meet the highest requirements on the market.
#1 Good Personal Credit
Your personal credit will be evaluated even when you are applying for a loan under the name of your business. As a business owner, you are the primary face of the business on the general market. Your character and record of repaying debts is a reflection on the business itself. This is especially true when you are starting a new business and need seed money. It will not be possible to get a start-up loan if your personal credit is weak.
#2 Good Business Credit
Once a business has been in operation for a year or more, the business will have an independent credit score associated with its legally incorporated name and tax ID number. This credit report, just like a personal credit report, will show all debts and obligations associated with the business and a complete record of payment. A business needs good credit to be considered for a business loan.
#3 Large Asset Base
Most business loans are secured against an asset. For a corporation, the asset may be office equipment, machinery, or the real estate a business owns and operates in. A business may even put its intellectual property or stock down as an asset for a loan as long as the asset has a fair market value. Collateral is not always required. However, it is required for most start-up loans and for the majority of low-rate installment debts in the future. Placing personal assets is possible, but not preferable.
#4 Solid Business Plan
A business plan reflects the estimated profitability of a business in years to come. Many beginning entrepreneurs neglect the importance of a well-written plan in order to gain financing. Personal loans do not require plans. Business loans, on the other hand, are only distributed when there are very detailed plans providing a predictable rate of return on investment for the initial capital provided. If you do not have the expertise to create this type of plan, consider adding a financial adviser to your board of directors or officers. The role of a financial planner only grows as a business grows, and this person can be integral to success down the line.
#5 Industry Experience
It is rare to get a loan for a business you have no experience in. Most lenders will want to see members of the board of the company or the founders of the company have knowledge and experience building a profitable business model. If you have no experience in an industry, add some experience to your team by seeking advisers. Not only will this help you get a loan, but these advisers can play a key role in problem solving while you get a feel for the industry.