Typical Bank Loan Requirements vs. What Fora Financial Requires
Fortunately, you have other options as a small business owner when you need to bridge gaps in revenue or supplement your cash flow temporarily to pursue expansion opportunities. Alternative lenders can simplify the process, so you can obtain a loan in less time and get back to business as usual.
Here at Fora Financial, we provide working capital loans up to $500,000 that you’ll have in your business bank account in as little as 72 hours from the time you’re approved. A bank loan or Small Business Administration (SBA) loan, on the other hand, can take months to process and approve. Plus, according to the Federal Reserve Small Business Credit Survey, only 68 percent of business loan applications were approved by small banks and 56 percent by large banks in 2017.
As a working capital lender, we’d like to examine the differences between typical bank loan requirements and what we require, so that you’re aware of all your options. We’re passionate about providing small business owners like you with business loans and merchant cash advances and pride ourselves in having fair requirements.
If you’re seeking outside capital, consider these differences in requirements for a traditional bank loan vs. what is required to receive a Fora Financial business loan.
Do You Know the Differences Between Bank Loan Requirements and Fora Financial’s Loan Requirements?
1. Loan Application and Financial Statements
Banks: Along with a lengthy loan application, banks require a significant amount of supporting information, including personal and business tax returns for the past three years, as well as your company’s balance sheet, statement of profit and loss (P&L), and bank statements. You’ll also likely be asked to include a personal financial statement, and information about personal loans that you’ve previously received.
Fora Financial: At Fora Financial, we require your business’s three most recent bank statements and our one-page application to get started. In certain circumstances, we may also request a month-to-date bank statement, tax returns, P&L, and balance sheet. We know that your time is valuable, so we try to make our loan application process as seamless as possible.
2. Credit History
Banks: If your business credit history is limited, most banks will take your personal credit history into consideration to determine your ability to pay back a loan.
According to NerdWallet, banks look for borrowers with a personal credit score of at least 680. If your score falls below this threshold, you’ll likely have a difficult time getting approved for a loan.
Fora Financial: When you apply for a loan with Fora Financial, your approval status isn’t solely based on your credit history. We try to look at the big picture when assessing your ability to receive and repay a loan.
Banks: Most banks require collateral — tangible assets owned by you or your business — to secure a small business loan. Some banks will even require you to pledge both personal and business assets before approving your application. Submitting collateral can be risky. If you can’t repay your loan, the bank can seize the assets you pledge.
Fora Financial: As an alternative lender, we don’t require borrowers to pledge collateral. This can be beneficial to you if you don’t want to risk losing personal assets if your business experiences hard times.
4. Revenue and Cash Flow
Banks: Typically, banks want to see that your income is at least 1.25 times your operating expenses, including the loan repayment amount. You’ll need detailed financial statements that show you meet the bank’s minimum income-to-expense threshold.
Fora Financial: Typically, we work with businesses that make more than $12,000 a month in gross sales. We understand that small business owners have many financial responsibilities like paying rent or purchasing inventory and want to make sure that you’ll be able to handle paying off your loan.
5. Time in Business
Banks: From a bank’s perspective, the longer you’ve been in business, the better. Since only about 80 percent of new businesses survive past the first year, a longer business history shows you’ve weathered both good environments and bad, so banks are more likely to extend financing. Without at least two years of operating history, you’re unlikely to be approved.
Fora Financial: In comparison, we require that your business be operational for at least six months to approve your loan request. This is to ensure that you’ve gotten your business off the ground, have a use for the capital, and can responsibly handle repaying the loan.
Conclusion: Understand Different Business Loan Requirements Before Applying
If you’re getting a small business off the ground or are trying to grow an already established business, financing can help you achieve your goals. If you’re unsure whether you’ll meet the strict requirements for securing a bank loan, consider alternative or online lenders that can provide you with working capital and flexible terms.
We hope that this post has been educational, and that you’re one step closer to receiving the financing that your business needs. If you have any questions about Fora Financial’s business loan options, don’t hesitate to ask!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.