Getting a business loan can be an excellent way to handle payroll, improve your cash flow, or expand your business during difficult times. Although each lender has rules, you should know many standard requirements when applying for a business loan.
Personal and Business Credit Ratings
Lenders typically review your personal and business credit scores when applying for a business loan to determine the risk you represent. A bad personal credit score can lessen your chances of approval, but an excellent score can help you get better interest rates and improve your chances of approval. Rates of personal credit scores are according to credit scoring models and lenders' guidelines. Malaysia has four central credit rating agencies.
CCRIS is the most important one, and the Credit Bureau of Bank Negara manages it. A good credit score is typically between 650 and 750 points. Many banks and lenders consider a credit score of 751 to 850 exceptional. As with business credit scores, it also depends on a lender's credit scoring model what a good or bad business credit score is. Bad business credit scores range from 0 to 49. A good score is between 80 and 100.
The Annual Revenue and Profit of the Business
Across all lenders, revenue and profits are among the most common requirements for small business loans. Lenders generally want to gain two years' profit and loss statements and reports from the past 60 days. Financial institutions will look at your company's profitability when approving your application. On the other hand, alternative lenders may not typically require profitability but usually set annual revenue minimums. Whatever the lender's requirements, your financials (such as your annual revenue and profits) will ultimately determine whether you can qualify for financing at the best possible rate.
Time in Business
Businesses with a long operation history have a greater chance of getting financed. The minimum time in business requirements varies depending on the lender, but it's common to require two years for traditional lenders. Online lenders frequently demand that applicants have been in operation for at least six to twelve months.
Nevertheless, this requirement might change depending on the particular form of business financing. For instance, a lender might insist that you have only been in operation for three months if you plan to use invoice factoring, which involves selling unpaid invoices to a factoring company.
Financial and Legal Documents
When you apply for a small business loan with a bank or another traditional lender, you will typically need to submit a ton of paperwork. You might require the following financial and legal records to apply for a small business loan:
- Income tax returns for individuals and businesses.
- Statements of financial position and earnings.
- Reports of personal and business finances
- An image of your driver's license.
- Leases for businesses.
- Commercial licenses.
- The company's bylaws.
- A resume complete with relevant managerial or retail experience.
- Financial forecasts if your operating history is short.
Online lenders might offer a streamlined application procedure that requires fewer documents and expedites underwriting. Some online lenders might provide rates similar to bank loans if you have good credit and robust business finances.
When applying for a business loan, shop around to find the most affordable loan that meets your company's requirements.
Don't know where to start?
Fincrew has developed a loan settlement calculator to help you estimate your monthly loan settlement with ease.
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