Every year small business owners waste months trying to apply for a small business loan when they never had a chance to begin with. In 2012, it is difficult to satisfy all the requirements a bank is looking for as a small or early stage business. There are 4 key ingredients that your business should have if you don’t want to run the risk of completely wasting your time and hurting your credit score by applying for a loan that you never had a chance to secure.
1. Credit Score Above 650 – Each bank will have a different number, threshold or requirement, but if your credit score is above 650 you should be safe. In this range your credit score probably won’t help you or hurt you.
2. A Couple Years in Business – Many banks require that you are in business for at least 2 years before they will seriously consider you for a business loan or line of credit. If you don’t have 2 full years of financial statements and business tax returns, you might run into a dead end at most traditional banks who will tell you to come back in a couple years.
3. $400,000 in Sales – There are many different key milestones when it comes to sales. Each lender will have their own policy, but lately it seems that many are willing to start lending once a business reaches $400,000 in annual sales. If you have not reached $400,000 in sales it is unlikely that your business is producing sufficient cash flow to pay your salary and make the monthly loan payments for your proposed loan.
4. A Stable Industry – Finally, banks want to lend to businesses in steady, stable industries. If you are reliant on one big job, a large one-time event, a single customer that accounts for a majority of your sales, or if you require a raw material that is in short supply, a bank is going to be very nervous about approving your loan request.
If you are a small business considering applying for a loan at a traditional bank, but you don’t have these 4 ingredients, then work hard to meet these minimum requirements, and in the meantime you may need to secure financing from investors and friends and family.