Today we’re continuing our look at some of the most frequently asked questions that we’ve received over the years, by answering an inquiry that comes up many times throughout the day: “What do I need for a business loan?”

What the Banks Require for a Business Loan

If you apply for a business loan from your bank -- which is certainly your choice if you decide that’s the right decision for you -- then you should be prepared to submit many official documents, including: 

• P/L statements for at least the last two years (though in some cases longer will be required).
• Your personal and business credit scores, which will need to be very high and virtually flawless -- any dings, even if they occurred years ago, will likely lead to your application being rejected.
• Your strategic business plan, which must be include comprehensive financial projections, marketplace and competitor analysis, and so on.
• A detailed, up-to-date resume for every key staff member in...

Business credit is a great way to get money as approvals are not based on personal credit. Business credit reports usually get started with a few vendor accounts who will initially offer credit. Initial accounts create tradelines and a credit profile and score are established. The company’s new profile and score are used to get credit. Newly obtained credit is based on the company’s credit per the EIN, not the owner’s credit based on the SSN. Personal credit doesn’t matter as the credit linked to the EIN is used for approval. When you use vendors to build your initial credit, you can then leave your SSN off of the application and can apply for business credit based solely on your EIN at most retail stores. Plus, you can get cash credit also, like high-limit cards with MasterCard and Visa. But building business credit all starts with vendor accounts. Without them, you won’t be able to start your credit profile initially, and that profile being...

With equity financing, you exchange a percentage of ownership in your business for financing, much like on the TV show Shark Tank. Personal credit is NOT an issue, but equity investors are looking for a tested and proven concept and sales really help approval. You might find some investors to invest in a concept only or invention. But most will want to see that you have an operating business that’s earning money and making profits.

And expect that they’re going to want a large piece of the equity. For it to be worth their time to invest, they might want 10-60% ownership of your business. That means they’ll be taking a large part of your future earnings, something you want to consider before recruiting an investor. There are lots of websites in which you can obtain crowdfunding for your business. This type of funding gathers money from a “crowd”, or a lot of people instead of one big investor. If the crowd likes your idea, they may donate money to your...

Collateral based lending lends you money based on the strength of your collateral. Since your collateral offsets the lender’s risk, you can be approved with bad credit and still get REALLY good terms. Common BUSINESS collateral might include account receivables, inventory, and equipment. 

With account receivable financing you can secure up to 80% of receivables within 24 hours of approval. You must be in business for at least one year and receivables must be from another business. Rates are commonly 1.25-5%. You can also use your inventory as collateral for financing and secure inventory financing. The minimum inventory loan amount is $150,000 and the general loan to value (cost) is 50%; thus, inventory value would have to be $300,000 to qualify. Rates are normally 2% monthly on the outstanding loan balance. An example is a factory or retail store. With equipment financing lenders will undervalue equipment by possibly up to 50% and work with major equipment only....

Many businesses have already proven “concept” and have consistently increased sales. Their strength is that they have shown stability and that they can effectively run a growing business. The risk to the lender is less as they are established businesses that are growing. How are your sales? Sales are the difference between an untested concept or idea, and a real operating business. Will your idea be well received? Do YOU know how to operate a business? Sales answer these questions. If you have consistent sales, the next question is does the business have existing cash flow proven by bank statements? There are lending options available that only require a quick bank statement review for approval. They won’t even need to look at your tax returns, so even if your business shows a loss you’ll still be okay. The next question is does the business have over $60,000 annually received in credit card sales? Does the business have over $120,000 annually going through...

Most entrepreneurs think that because they have bad credit there is no chance of them getting a loan. But in reality, there are actually many different financing options that business owners have in which they can qualify, even with severe credit challenges. As you already know, banks REQUIRE good credit to get approved for business financing. But still, most people only go to their bank when they need money, because it’s the only place they know to go to. But the most common business bank loan, SBA loans, only account for 1.1% of all business loans (Department of Revenue 2013).The reality is that the big banks are NOT the suppliers of most business loans. And even though they require good credit to qualify, many sources don’t. The big banks are very conservative, as most know. Due to this they commonly won’t lend to businesses in which the business owner has challenged credit. But businesses can succeed even if the owner doesn’t have perfect credit. And many...