Your ecommerce business is thriving, and now you’re considering taking out a small business loan. But for some reason, you’re first-date nervous.
What if the bank doesn’t like you? What if you don’t qualify? You’d be left like a jilted girl on prom night.
The Small Business Association, the top small business lender in the US, has some specific criteria it considers for each of its SBA loans, but in general, you’ll position yourself positively if you ensure the following happen.
1. Qualify as a Small Business
Likely, you already knock this one out of the ballpark, but just know that the SBA defines a small business as one with fewer than 500 employees or less than $7.5 million in annual sales. If you’re a one-person show? You definitely qualify. No effort needed.
Also: the SBA likes to see that you run an established business, at least two years old. This shows them that you’ve figured out how to start making revenue, which indicates your ability to pay back your loan.
2. Beef Up Your Credit Score
Of course you know that the higher your credit score is, the more you qualify for credit cards and loans. For SBA loans, they want you to have at least a 680 FICO score.
Not quite there yet? Plan your strategy.
Apply for a business credit card every six months to build credit. When you use it, always pay off the entire balance when you can on time. This is what credit agencies look for: good use of credit. Do this for 6-12 months, and your credit score should rise. If you currently have debt, work to pay that off before applying for your small business loan.
Also review your credit report regularly to make sure there are no errors on it. If there are, contact the appropriate credit card company to get the information updated.
3. Don’t Be Desperate
It’s counterintuitive, I know: it’s nearly impossible to take out a small business loan when you need it most, like when your customers are slow to pay or you otherwise have a cash crunch.
You’re a much more appealing loan applicant if your business is profitable. So, ideally, you will want a loan to expand your business product line, hire staff, or move into larger office space, not because you desperately need to make ends meet.
4. Have Assets
Should you be approved for a small business loan and you can’t pay it back, the SBA wants to have collateral it can use to cover your loan debt. If you run a low-asset business, the SBA may hesitate before approving you for a loan.
Having real estate or equipment qualifies as assets, so if you’ve got one or both of these, it should be smooth sailing for this loan criteria.
5. Be Seeking at Least $30,000
Small business loans typically start at $30,000, if not more. If you only need a few thou, look at microloans as a better option. The SBA does have a microloan program, where the average microloan is $13,000.
You should also be able to explain what you will use the funds for, rather than be loosey-goosey with your plan (“Uh, I plan to spend it… on my business.”). The more detailed you are with your loan budget, the better chance you stand of being approved for financing.
Positioning yourself as the ideal small business loan candidate will increase your odds of being approved, as well as qualify you for a great interest rate.