So you’re planning to get a commercial loan. Before actually applying for one, take time to review your options and consider a few vital issues, such as your business’s financial position and growth stage, as well as the direction you intend to take with it.
Here are the things you should focus on as you decide which commercial loan is right for your needs and objectives:
Your yearly revenue is an important indicator of your commercial loan eligibility. Before they approve your application, lenders will want to be sure that you have enough incoming cash that allows you to cover your loan payments, aside from all your operating expenses. For verification, they will ask for your latest Profit & Loss Statements as well as your tax (personal and business).
Earning revenue is only one part of managing a successful business. Important as well is the way you take care of your money. Lenders need to be confident that in case you have problems with your cash flow, you can maintain a safe cash cushion to keep your business stable. Even your sales are skyrocketing, lenders can still doubt your ability to repay your loan fully and in a timely manner if they think that your balance is too low.
Make sure you have an average bank balance of at least three months’ worth of your business’s operating costs – including your loan payment – to pass the underwriting process and expand your business loan options. Lenders will assess your latest bank statements while calculating your average bank balance, before determining whether or not your business can survive while you repay your loan.
As far as any lender is concerned, the risks of funding a younger, untested business are far greater than if they were to lend money to an established company. Obviously, if a business has been there for ten years, it has shown more stability compared to another business that is yet too young and unproven. Fact is, around only half of small businesses make it past 5 years.
Finally, when it comes to commercial loan underwriting, your personal credit score is usually the most crucial requirement. Lenders automatically think that your way of handling your personal finances is exactly how your business finances will be managed. Therefore, your personal credit score will always have a big hand in your eligibility. So you should make sure to keep this number high.
Basically, your personal credit score is way of determining how honest or trustworthy you are as a borrower. It depends on a whole range of factors, such as credit utilization, bankruptcies, and more.