Why Does Business Loan Verification Matters To Lenders?
Applying for a business loan can be distressing if you don’t know what lenders look at to qualify you. However, the following short guide helps take the guesswork out of the loan verification process, so you have everything you need to approach your lender more confidently.
What Will be Verified Before Your Loan is Approved
Lenders use three main factors to qualify you for a business loan, which include proof of your identity, proof of your business’s legitimacy, and your debt to income ratio.
That being said, some documents they will require to verify these factors include:
Proof of your Identity
The documents that most lenders use to prove your identity include your driver’s license, social security card, and proof that you are a legal resident.
The lender will also use these documents to access your personal and business credit scores. So be sure to improve your credit score before applying for a loan to help you qualify.
Proof Your Business is Legit
To prove that your business is legit, the lender may also want to see your EIN, etc., which will then be used to verify whether your collateral assets are protected based on the structure of your business, so the loan is less risky for the lender.
They will also want to see that you are properly licensed, which means your business won’t be closed down, so it won’t affect your ability to repay the loan.
Income and Debt Verification
Most lenders will also want to see your tax returns, bank statements, and in some cases, even credit card processing statements to verify your income and determine your loan term.
They will also want to see that you have a solid history of paying your debts, which shows you won’t struggle with repaying the loan. It also determines the interest rate you will be given.
The amount of debt you have can also affect your ability to repay the loan, so most lenders will also want to review documentation for any other loan or line of credit you have to verify your income to debt ratio.
How Verification Impacts Your Loan Application
In short, if you don’t meet the requirements of the lender, then most likely, you won’t qualify for a business loan.
However, if you are denied, you can reach out to the lender and find out why, so you know what went wrong.
This way, you can improve that facet of your business finances to qualify in the future.
How To Ensure Your Loan Gets Approved?
Before applying for a business loan, maintain a good credit score and sufficient cash flow in the business, be insured, and have your documents ready for the loan application to increase your chance of being approved.
In the meantime, according to Lantern by SoFi, “the Economic Injury and Disaster Loan program is a great option for businesses that have been struggling because of COVID-19.” And you may also qualify for the Advance, which doesn’t have to be repaid. Just be sure to check the SBA disaster loan repayment terms to ensure you qualify.