Growing or establishing a small business requires money, and usually more than most small business owners have on hand. When it comes to acquiring a small business loan—something that can be important for leasing or buying equipment—most people think of going to a bank to borrow money.
Banks generally offer the best interest rates, but the application process can be cumbersome and lengthy. Even if you’ve got a successful business model that is very profitable, and a great credit score, you still might not check all the right boxes for the bank’s approval.
What does it take to get approval on a business loan from a traditional lender like a bank? Keep reading to find out!
However, if your business doesn’t meet the qualifications, there are still some great financing options that can work to your advantage. Team Financial Group, with more than 20 years of financing experience, will take a holistic look at your business finances and work with you to find a business loan solution that fits your business – even if the bank has turned you down.
Bank Requirements for Business Loans
Banks can be attractive places to get a loan because they can offer the best interest rates and are traditionally thought of as safe and secure lenders. But in order to remain safe and secure, they often have more stringent requirements for business term loans than alternative lenders, particularly because they cannot lend to businesses that they deem “risky” or likely to default.
Therefore, most banks want to see a solid history of profitable business before they’ll approve a bank business loan. And they establish this by looking at the following factors.
Not only must the business have a high credit score, but since bank loans are often required to be personally guaranteed by the owner, the bank will want to see the owner’s personal credit score as well. For small business loans with the best interest rates, credit scores of 690 or above are preferred.
To get approval for Small Business Administration (SBA) 7(a) loans for equipment, the SBA is the guarantor instead of the business owner. If your own credit score isn’t great, this might help you gain approval on a bank loan.
Typically, banks only lend to businesses who have been in business for a minimum of two years. If you don’t have the business history to qualify, a nontraditional lender will probably be a better fit for your financing needs.
In order to secure a small business bank loan, you’ll need to show that your small business has consistent cash flow. The amount will vary by lender, but some banks expect to see an annual revenue from $50,000-250,000 to approve business loans.
An alternative may be to apply for a business line of credit, which can act like a credit card for your business to borrow money against.
Depending on the type of bank loan you’re applying for, and how good your credit score is, you might be asked to put up business assets as collateral. If you default on your loan, the bank has the right to seize these assets. Collateral is not required for unsecured loans, but an unsecured business loan may have greater requirements for a personal guarantee from the owner(s).
After the bank has dug into your past financials, they’re going to want to see how you’ll use this loan to improve your future. Your business plan should include how you expect to use your small business loan to achieve your goals, and how you expect to repay the loan. This is a way to see if you have the cash flow to cover all your expenses, plus the monthly payments for the loan.
Loan Approval Period
After you’ve double-checked and submitted all your paperwork, there’s still a waiting period to see if the bank has approved your application. This can be about 2-4 weeks for most bank business loans. For SBA loans – even if you’re working with an SBA-preferred lender – the approval can take as long as 3 months. If you’re rejected, you may have to start over from scratch. That might not fit your timeline, in which case you’ll need to look at other business financing options.
Alternative Options for Small Business Loans
If you’re struggling with bank approvals for small business loans, there are plenty of other options. If you have the option to refinance commercial properties, that can be a way to raise capital for business expenses. Online lenders can offer easier and faster approvals for loans, and local credit unions may also be an option. Private lenders can also be a good choice, especially if you are looking for a lender with extra flexibility.
Unlike a bank, Team Financial Group can take a big picture look at your company and see that even though you don’t meet a bank’s requirements for business history, your business plan and credit score are both excellent and you have a promising future. In fact, that’s exactly what we did for Walnut Grove Excavating after they were turned down by the banks.
In addition, Team Financial can help you find financing fast: we often can get same-day approvals for your business. Plus, we may find that a standard term loan is not the best fit for your business. We can offer equipment leasing which will protect you from rising interest rates and help you save money on a down payment. We want to get to know you and your business, so that we can figure out the best way to help you succeed!
Get Started With Fast, Flexible Financing Today
If the banks have turned you down, or you are looking for a faster, more flexible option, give us a call.
Team Financial Group’s mission is to apply common-sense lending principles to small businesses, unlike traditional banks which have strict requirements. We’ll dig into the details of your business so that we can see what the banks missed: if you’ve got a solid business plan and need a financial boost to achieve success, we’ll try to help you get there.
If you’d like to learn more about what sets Team Financial Group apart from traditional lenders like banks, give us a call at 616-735-2393 or fill out our short online contact form. Our expert team is always happy to help!