Applying for a business loan can be stressful and time consuming. However, at Capital Resources, we want to provide current and future agency owners with an efficient lending process designed to get you the loan you need when the time for acquisition, expansion, or debt refinance is right. A few tips to make the lending process more enjoyable and effective include:
Knowing Your Credit Score
Your FICO score is a great determining factor for your business loan. Individuals with low FICO scores are more likely to receive loans with a larger down payment requirement, high interest rates, or may not receive approval at all. Higher FICO scores, however, make it easier for potential borrowers to get a great loan with a low interest rate and a smaller down payment.
To know in advance the type of loan you may or may not be eligible for, know your credit score. Your credit score will empower you as a borrower, and help you determine how to go about negotiating loan terms.
Minimizing Credit Red Flags
Lenders aren’t just looking for a good FICO score, they also use your entire credit report to determine borrower creditworthiness. Even if you have a mid-range credit score, numerous red flags can prevent you from actually obtaining loan approval.
If your credit report reveals delinquent accounts, late payments, or high debt, take the time needed to repair these red flags. You can call or write creditors to remove former negative reports, and paying bills on time for at least 6 months can help improve your score and clean up your credit report.
Refrain from New Lines of Credit
Prior to and during the loan application process, refrain from taking out new lines of credit. Even if you found a really great deal on a new car or found a business credit card that provides beneficial rewards, pulling out these new lines of credit prior to applying for a loan will affect your eligibility.
Lenders do not want to see potential borrowers with recently open lines of credit because it increases your liability. The potential borrower has just increased their debt-to-income ratio and has increased their potential to not make payments on time. So to give yourself the best probability of approval, avoid opening new lines of credit until after your loan is secure and after you’ve made at least 6 months worth of repayments.
Get Your Taxes in Order
Lenders will want to see your taxes to determine your responsible business practices, as well as your good organizational skills. Seeing taxes also helps lenders see that your current business or potential acquisition is profitable which increases approval likelihood.
Prior to starting the application process, make sure that your personal and professional taxes have been filed, without extension while obtaining and organizing all paperwork related to filing. If you are acquiring an agency, make sure that the agency has also filed its taxes on time, without extension, along with obtaining and organizing all associated paperwork.
A business loan will be one of the largest business investments any agency owner makes. Know the business loan you are applying for prior to application. Farmers, Allstate, and independent agency owners have different options available to them, and knowing your carrier’s terms, as well as the lending products available will help you advocate for your needs during the lending process.
Take the time to research short-term, long-term, acquisition loans, debt consolidation, and working capital loans. Know how interest rates and various loan terms can affect you and your agency. Review loan specific terminology to help with better engagement in negotiations.
Organize all Paperwork
The lending process requires a substantial amount of paperwork, and one of the easiest ways you can help streamline the lending process is by organizing all needed paperwork. Prior to completing a loan application, gather all paperwork including pay stubs, personal and agency tax information for the last 3 years, agency income statements, and any information that has market trends, business history, expenses, revenue trends, and revenue makeup in numbers.
Do Your Due Diligence
Don’t just simply gather all the aforementioned paperwork, research it and know it intimately. Loans designed specifically for insurance agents are still business loans, and every business loan needs a business plan. Lenders are going to want to lend to borrowers who have done their due diligence and can provide them with the well-researched information that highly suggests the agency’s success.
Speak with a Specialist
Applying for a business loan can be an overwhelming experience for any current or potential agency owner. When beginning the research or application process, don’t hesitate to call a loan specialist. Capital Resources’ specialists can answer loan specific questions, provide feedback for the loan approval process, and help coach potential borrowers through the process.