Once you’re ready to apply for a business expansion loan, be sure you have a good understanding of the loan requirements. Analyze your financing needs and be clear about what aspects of your business you’ll be changing with your renovation and expansion.
Once you’ve created an outline of your project, develop a ballpark budget so you have an idea of how much money you’ll need to borrow. When you have that in place, get ready to meet the following lender requirements for an expansion capital loan.
Business Expansion Loan Application Requirements
When determining how to fund your business’s growth, you need to be prepared for the application process, which could be lengthy depending on the loan and lender.
Also, keep in mind that whatever interest rate you’re approved for, additional fees may apply. These could include origination fees, closing costs, prepayment penalties and late fees.
You’ll need to provide lenders with access to your business’s financials. Many alternative lenders advertise a hassle-free application process and are generally less stringent than conventional banks, which might require you to provide:
Criteria Lenders Consider
Lenders review multiple components when evaluating a business owner for commercial property and business expansion loans. The most common considerations include the following.
Lenders will evaluate your personal and/or business credit score when determining whether to approve you for a renovation loan or business expansion loan. Credit score requirements vary depending on the loan type and lender, with online lenders generally offering more leniency than conventional banks.
If you’re looking to apply for business financing through a conventional bank, you should have a minimum personal credit score of 640 or higher, with approval odds rising for those with scores of 700 or more.
Time in Business
For conventional loans, banks may require you to have been operating your business for at least 2 years. Loans guaranteed by the SBA may require less time in business. In contrast, online lenders may only require you to have 4 months to 1 year in business for other financing options.
You need to show that you have income to cover your debt. Lenders will generally require that your business bring in a minimum dollar amount per year. This amount varies depending on the loan type and loan amount.
Some online lenders and loan types may require only $50,000 in annual revenue. However, others may require $200,000 or more.
Revenue alone is not enough. Lenders need to know you can manage your money. You could make a million dollars a year, but if more money is going out than coming in, high revenue won’t count for much.
Collateral reduces risk for lenders. If you aren’t able to repay your debt, they still have something of value they can cash in. In some instances, lenders may prefer, if not require, collateral.
For example, with a commercial real estate mortgage, the property you purchase serves as collateral for your loan. For SBA 7(a) small loans exceeding $25,000 up to $350,000, lenders must, at a minimum, obtain a first lien for assets to be purchased with the funds. SBA lenders must also obtain a lien on a borrower’s fixed assets, to the extent that the full value of the loan is secure.
For 7(a) loans more than $350,000, lenders must secure as much collateral as possible up to the loan amount.
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