Contrary to a typical personal loan, a business loan consists of a higher risk for a lender. It results in stricter eligibility and a longer process. As is often the case with other loans, first time business loan also require a good credit score and repaying capacity.
Not to mention basic eligibility criteria – having a bank account, an Ireland-based business, and being an Ireland resident – but you need much more than that to prove your affordability.
For instance, a lender may look at your business credit score if you are an established business.
The eligibility criteria for qualifying for a business loan as a start-up may differ from the criteria for an established business. However, most of the conditions will still be the same. First off, you need to understand what you need to be eligible to take out a first time business loan, let alone get the nod from a lender.
Eligibility criteria you need to meet for a First Time Business Loan
Although you may have a couple of options when it comes to taking out a business loan, you will have to meet the following conditions:
1. Credit Score
A credit score is the most common factor that a lender would look at to decide if you will be able to pay back the debt. If you are looking to take out business loans for start-ups in Dublin, your personal credit rating should be good.
Many people do not bother to have a good credit rating as they assume they stand a chance by putting down collateral despite a poor credit rating. Still, the fact is that you will need it despite a good credit score. Thus, getting a lender to sign off on your application when your credit report is not up to scratch is out of the question.
If you are an established business, you should also look after your business credit score. A lender would like to take stock of both personal and business credit files.
Tips to improve the credit score
- Pay off all your debts on time. No instalments should be missed.
- Consider consolidating your debts if you are unable to keep up with payments of multiple debts.
- Try taking out credit builder loans to strengthen your score.
- Pay rent, utility bills etc., on time.
- Use credit cards only when it is extremely necessary and pay off the balance on time.
- Make sure you pay your business suppliers on time to prevent your business credit score.
- If you have a business credit card, try to use it carefully because it will be used to calculate your business credit score.
Having a good credit rating is imperative to get approval for a business loan.
2. Age of your Business
How long you have been in your business is another factor that decides the lending amount. If you need a large sum of money, your business must be a couple of years old. It shows that you have the potential to run your business.
You must have been running your business for two years. However, if you have not completed one year, you can consider taking out a start-up loan, but you will still need to prove your ability to run it.
3. Annual Revenue
Lenders will peruse your income statement to see the revenues you earn before and after paying taxes. The lending amount will be determined based on the profits you earn. It depends on the lender if they turn you down straight away, or they may lend you lower than you want.
A lender may or may not ask for collateral. If you are borrowing a large amount of money, you will certainly need to put down security. However, if you need short-term loans in Ireland for your business, you may not need to secure it against a valuable asset. The potential collateral could be anything like equipment, inventory, property, and the like.
Application mistakes to avoid for the First Time Business Loan
Now that you know the eligibility criteria to apply for a business loan, even if you meet all conditions, there is no guarantee that you would be able to qualify for a business loan. The following mistakes can prevent you from borrowing money to fund your business:
1. Making big changes
If you borrow money because you want to make big changes in your company, a lender may refuse you. They want to see stability. Even if you are taking out a start-up loan, you should be able to prove your stability by showing a business plan for the next two to five years.
Lenders may be willing to back you despite too much risk involved only if you can prove that the project you are undertaking will dramatically boost your profits. However, there is still no guarantee that you will get the approval for it.
2. A business plan is not comprehensive
You will have to submit a comprehensive business plan. Do not treat it like just mere formality. A lender would like to know your aspirations and strategies you will use to make your project successful.
If you have just started your business, you will have to provide details of how to attract your target audience, what marketing methods you will use, and the like.
A detailed business plan will help a lender take stock of your financial situation to decide if you can afford to pay back the debt.
2. Lying on your Application
You may be tempted to lie on your application just because you think that lenders run a soft credit check. They may not be able to dive into your financial history. Well, a hard credit check is done by a lender when you apply for a business loan.
Though you can manipulate your actual financial details on the application. They will get a clear and true picture of your finances after checking your bank statement and income statement.
Be honest with all details you provide to a lender. Likely, you can still get approval, but if you are found guilty of hiding or manipulating your financial details, they will straightaway turn you down.
3. Missing Deadlines
Getting a business loan is not an overnight process. It takes a couple of days. A lender would like to see if you can actually make the payments on time, and therefore they would ask for some documents.
Note that you should provide them with all documents on time because if you do not, it reflects on your recklessness. A lender would be sceptical about your repaying capacity as well.
To Wrap Up
If you are taking out a first time business loan, you do not have just to ensure that you meet the eligibility criteria. Still, you also need to check you do not make any mistakes on the application that result in straightaway rejection.
Hudson is a graduate of banking and finance and works as a financial consultant at MyLoansBoat. He has a professional qualification to counsel people about money management. At MyLoansBoat, his key duties include shortlisting applications of borrowers and counseling them about credit score improvement, building an emergency cushion, retirement funds, and getting rid of debt. He is an ardent reader of finance books and uses the gained knowledge to help people with their finances. He also writes for the company’s blog on various topics like budgeting, investing, saving, debt management, joint finances, and the like. His aim is to dedicate his life to helping people have a debt-free life.