To start your business off on a strong foundation, you’ll need adequate startup capital for all those initial costs. The SBA (Small Business Administration) can help you get approved for loans from banks and other traditional lenders. But what ultimately determines that dollar amount? Here are five factors that determine your approved business loan amount.
1. Your Credit Score
Banks tend to lend money to people who they think will pay them back. If you have a checkered credit history or any outstanding debts, a lender may be hesitant to give you a large loan. Before you apply, pay off those bills – it can make or break your business!
2. The Loan’s Timing
If you want to get your business started sooner rather than later, you may balk at the prospect of applying for a business loan. The approval process can take weeks or even months. However, if you need the money immediately, you likely won’t qualify for a large loan.
3. Business Trajectory
When you apply for a business loan, the lender wants to know how you will use your new business startup funding. Create a solid, workable business plan with a firm budget that accounts for loan repayments. If you’re too adventurous with your initial goals, a bank may feel uneasy lending you a large amount of money.
Obviously, you want your business to bring in more money than it spends. Lenders like to see a strong accounting department that manages positive cash flow and is meticulous with expenditures. Your sales volume should be steady or increase every month.
5. Insurance Information
Your lender will want to know more about your life insurance policy to ensure they get a return on their money. In the unfortunate event of your death, your life insurance payout will close your business loan. The higher your life insurance, the more money your bank may be willing to loan you.
Before applying for a small business loan, think about every scenario or factor your lender will investigate. You can avoid being caught off guard by a small dollar figure if you know factors that determine your approved business loan amount. Many of them are within your control, so dot your I’s and cross your T’s before applying.