When you are planning to apply for a loan, there are several steps you can take in advance to show possible lenders that you are a low risk borrower.
Simply put, a low risk borrower is someone whose credit history and financial status prove they can not only attain a loan, but pay it off on a regular basis without missing a payment. Lenders need to make sure that the money they loan can be paid back.
Before you begin the application procedure – which can take awhile – there are several steps you can complete that will speed up the entire process, and show lenders that you are a worthwhile investment.
Going into business is a major decision, and you need to make sure that the industry or field you are entering is well suited for you. Go beyond simple research and talk with people who are business owners to get specifics on topics such as profits and loss, major obstacles, and how they found success.
One of the first items a lender will review is your credit score to determine how you have managed your debt.
You can check for yourself by obtaining a free credit score via several different websites, one of them is Annual Credit Report. The report will generate a score that you can share with lenders. You can also use this information to rectify any outstanding debts.
It’s easy to build up your credit score – all you need to do is pay your bills on time and if you budget correctly you can also pay more than the minimum payment. It may take some time for this action to be reflected on your overall score, but lenders will see that you are responsible and serious about taking on a new loan.
Depending on the amount of debt you have, you can work with a financial institution to consolidate all of it onto one credit card or account. Not only does this help you focus on paying down a specific number, it saves you time from having to juggle multiple payments to different lenders.
Lenders are going to ask for plenty of backup when you begin to apply for a loan. Make sure you have business financial statements, going back at least three years. If you don’t own a business, then you’ll need to have personal financial statements from the last year and income tax returns.
Plan on having at least 15 to 20% of the total loan amount in your account before applying. This will show the lending institution that you’re worth the risk, and at the same time you will have additional funds you can use for other expenses.
Reach out to possible investors that can include friends, family members, or other institutions that will invest in your upcoming business venture. You’ll need to show them a business plan and growth projections. It’s important that you also have contracts for them to sign so you can present them to the lender.
Transforming yourself into a low-risk borrower isn’t easy, but it can be when you partner with experts in the business acquisition field. We can partner with you to determine what’s a good fit, and help you prepare for your loan application.
Contact Murphy Business Sales today, we look forward to working with you.