Fora Financial Loans vs. Typical Bank Loan Requirements
Among other factors, the bank will likely consider your credit history, collateral, revenue and cash flow, time in business, and your intended use for the funds to decide whether you’re a good loan candidate. Meeting this long list of requirements can be difficult, especially if your business is in its early stages.
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 small business loan in less time and get back to business as usual.
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.
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 working capital, consider these differences in requirements for a traditional bank loan vs. what is required to receive a Fora Financial business loan.
Comparing Bank Loan Requirements and Fora Financial’s Business Loan Requirements:
1. Business Loan Application and Financial Statements
In order to get a loan approval, you’ll need to submit a loan application and your business’s financial information. Below, we’ll explain how our application process differs from traditional bank financing.
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
- Your company’s balance sheet
- Statement of profit and loss (P&L)
- Bank statements
- Personal financial statement
- 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:
- Month-to-date bank statements
- Tax returns
- A balance sheet.
We know that your time is valuable, so we try to make our loan application process as seamless as possible. In addition, our knowledgeable capital specialists and customer service team are happy to answer any questions you may have.
2. Credit History
As you probably know, most business loan providers want to review your credit report to determine if you meet their credit requirements.
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. Due to this, bad credit business loans usually aren’t an option if you’re seeking bank financing.
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. Remember, submitting expensive or important business collateral can be risky. If you can’t repay your small business loan, the bank can seize the assets you pledge.
Fora Financial: As an alternative lender, we don’t require borrowers to pledge collateral in order to get approved for a loan amount. 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
Lenders want to ensure that business owners can responsibly make their weekly or monthly payments. Therefore, if a business owner struggles with cash flow shortages, it may be challenging for them to pay off their balance.
Banks: Typically, banks want to see that your income is at least 1.25 times your operating expenses, including the business loan repayment amount. You’ll need detailed financial statements that show you meet the bank’s minimum income-to-expense threshold. In addition, they may ask to see your business plan to understand how your finances are being allocated.
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 ensure that you’ll be able to handle paying off your loan.
5. Time in Business
Although there are lenders who work with startup business owners, it’s often the case that loan providers will have a time in business requirement. This is because lenders like to work with established business owners that already have a strong track record of success.
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. We have this requirement to ensure that you’ve gotten your business off the ground, have a use for the loan, and can responsibly handle repaying it.
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, business financing can help you achieve your goals.
In addition, 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!
Editor’s Note: This post was updated for accuracy and comprehensiveness in July 2021.
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.