How Can I Qualify for a Small Business Loan in 2022?
October 11, 2022 | Last Updated on: January 31, 2023
October 11, 2022 | Last Updated on: January 31, 2023
In this article we cover:
Obtaining financing for your business can be a process. There are a lot of eligibility requirements and documentation you will need to produce for your lender for them to feel confident in providing your business with capital. From business plans to financial statements to credit scores and everything in between, we cover how to qualify for a business loan in 2022. The type of business and the type of business loan can introduce nuance to the qualification requirements. In addition to the qualifications, we also provide tips to manage the business loan application process.
Qualifying for a business loan requires a lot of prep work and can be a long process. Understanding what lenders are looking for ahead of time will help make the process smoother and you won’t be scrambling to locate documents. Let’s jump right in and review the general business loan qualifications for 2022:
Business plan: producing a business plan will likely be the largest effort to qualify for a business loan. Even if the lender does not require a business plan, you should still consider creating one anyway. At some point down the road you might need one, and having one handy can be very beneficial. A business plan is an opportunity for you to show the lender your professional experience and that you are a serious business operator. By highlighting your skills and a plan to repay your loan within the framework of a business plan, you are justifying to the lender that they should consider your request to borrow money. Let’s take a quick look at the elements of a business plan:
For a deep dive into the business plan process, how to create one, and other best practices, read our article titled: How to Write a Business Plan for a Loan Application.
Generally speaking, these are the core requirements to qualify for a business loan in 2022. Let’s review some of the nuances to consider and when and why you might need to produce even more documentation to qualify.
There is no one-size-fits-all approach to small business financing and there are nuances to consider when qualifying for a business loan. Because there are many options to obtain capital for your business, consider how the following will impact your qualification requirements:
Type of business: Certain businesses have special requirements and loan options. It is up to the business operator to do their due diligence into any special qualification requirements. For example, certain franchises offer franchisees different types of direct financing options. To create a strong partnership, a franchise can offer a franchisee reduced fees or eliminate fees altogether, or offer a special financing arrangement with a pre-determined lender. Additionally, each franchise will provide a Franchise Disclosure Document (FDD) or something similar. The FDD is a document that a franchisor is legally required to present to the franchisee before you sign the franchise agreement and will likely be needed to qualify for a business loan for a franchise. For more information on franchises, see our article titled: Ways to Get a Business Loan for Opening a Franchise.
Loan amount: The loan amount you are trying to obtain for your business needs will directly impact the type of loan you should be targeting and what the monthly payments will be. There are usually maximum loan amounts for each loan product to consider as well. Also, consider how much of the loan amount you need right away. Do you need a lump sum payment the same day or the next day? Or can it wait?
Special type of loans: In addition to the typical loan product offerings, there are special types of loans that have unique qualifications. For example, the SBA offers a range of COVID-19 relief options for businesses that meet special requirements. Under the umbrella of Covid-19 relief options, there are even more loans for specific business situations.
SBA loans: Loan programs from the U.S. small business administration have additional qualifications. Here are the high-level qualifications for the three most popular types of SBA loans and where to find additional information:
Alternatives to business loans: It’s important to ask yourself, “am I ready for a business loan at this stage in my business?” Writing a business plan can help you answer that question. There are many alternative funding options that a business can explore before needing a business loan. For example, will a business credit card with a high credit limit or a business line of credit serve your purposes? Qualifying for those two financing options can be easier than qualifying for a loan and can take fewer business days to do so. Other business funding alternatives include personal cash, crowdfunding sites, personal network, venture capital, and more. It’s important to understand the pros and cons of each of these alternatives though. For example, an investment from a venture capital firm will require that you give them a percentage of ownership in your company vs a business loan lender who does not.
New business vs existing business: As we touched on above, qualification requirements will change depending on if you are a new business or an existing business. An existing business with a strong credit profile will likely not need its operators to produce any personal information. Also, being in business for longer opens you up to more loan options. For example, both term loans and working capital loans have time-in-business qualification requirements.
If you’re reading this article and saying to yourself, “this is a lot”, you are right. Qualifying for a business loan is a process. Here are a few things to consider:
Qualifying for a business loan in 2022 (and likely beyond) is a process due to the high volume of documentation required. There are many ways to get a business loan for your small business and Biz2Credit is a great place to start. Our helpful staff provides small business owners with exceptional customer service and will work hard to understand the needs of your small business, the intended uses for your loan, and the best terms that can be offered. Get in touch today to find out the small business loan financing that can help you.