Most small businesses aspire to become profitable and grow at scale. Often, they need a little help along this journey. In most cases, this help comes from business loans; timely cash injections to improve business processes and achieve growth milestones. Business owners usually use this boost to invest in new talent, expand premises, install new equipment, market the business, etc.
As a small business owner, however, loans might seem cumbersome and overwhelming. There are too many variables that demand your attention – the lender’s credibility, the length of the application process, minimum requirements, the interest rates, the terms and conditions, etc. But checking all the eligibility boxes might be a good starting point to make the loan process more manageable.
Get the basics right
If you ensure your business meets the eligibility criteria, the rest can easily fall in place. For example, you need to make sure your product is profitable by calculating the contribution margin properly. It is a crucial step when you start thinking about your larger goal – how to get a business loan.
Though several other criteria influence your business’s eligibility for a loan, most lenders have similar base requirements. Usually, the loan applicant must be over 18 years of age, be a company director, live in the UK, and have a credit score of at least 350. The business, too, must be at least a year old, UK-based, registered as an LTD, LLP, or PLC company, and have a £50k+ annual turnover. That’s it; if your business meets these basic requirements, the loan battle is already half won!
Parameters might vary
Of course, eligibility conditions might change depending on who or where you choose to borrow from. Traditional financial institutions like banks or government grants’ offices might have more stringent norms, while online lenders’ requirements might be more relaxed. Depending on where you’re at in your business journey, choose the option that seems best-suited.
The criteria might also change based on the type of loan you choose. For instance, a startup loan doesn’t need your business to be in operation – you can borrow with the intention of setting it up and getting it off the ground. Similarly, you might find that requirements are different for secured and unsecured loans.
Venture capitalists, investors, or lenders who are friends and family might be willing to assume more risk and offer loans even at little to no eligibility criteria.
Identify and plug gaps
Once you cover the basics and meet the base requirements for business loans, you can start filtering lenders and the type of loan you can get. But don’t be disheartened if your options seem limited and you don’t find lenders or loan types that seem suitable.
If you have the time and resources, you could work on strengthening your business credentials – improving your credit score, for instance – to broaden your borrowing-options’ horizon. This exercise will help your business in the long run and reduce considerable anxiety when applying for a loan in the future.
Keep your credit score high
If you intend to borrow from a bank, your business credit score must be as close to impeccable as possible. The higher your score, the more the banks trust you to pay them back and offer loans at lower interest rates. Online lenders, too, are increasingly following suit. Evidently, a bad credit score can hurt you financially!
Start by finding out what your business credit score is. Keep tabs on your credit, and try to pay your dues on time. Even a single slip-up can reflect poorly on your overall score. Also, by regularly reviewing your credit score, you are more likely to find and dispute errors, thereby improving your score or at least being mindful of it and preventing further damage.
Still unsure? Call the helpline
Checking your business’s eligibility for loans might sometimes be confusing, and that’s okay. There are ways around this problem. The easiest solution is just to ask the experts. Most lenders have a dedicated helpline or a website with a quick, preliminary eligibility checker. If you have your business details in place, you could quickly find out whether you are eligible.
This exercise can go one of two ways – you either qualify, or you don’t. If you don’t, you can discuss your options or chart a roadmap to bring your business’s parameters up to lenders’ eligibility standards. Either way, a quick call can’t hurt. It’s always good to seek expert opinion and utilize customer care options. Lenders are known to make exceptions and might relax some requirements if you meet most others. Lenders need you as much as you need them, so don’t hesitate to check.
Bella Wanana is the blogger behind bellawanana.com, a personal finance and lifestyle blog. She loves sharing with her readers the best tips and tricks on personal finance and how to live a balanced but fulfilling life. She is also a freelance writer, and she has been featured on sites like MSN.com, Reader’s Digest, The Financial Diet, Yahoo Finance, and GOBankingRates.