Fora Financial Loans vs. Typical Bank Loan Requirements
All lenders take certain factors into account when considering providing small business loans, such as the annual revenue of the business, the funding amount being requested, the type of term loan being applied for, and the borrower's general credit history.
Your bank will likely consider any collateral your business may possess, like equipment, inventory, real estate or other valuable assets, your cash flow, the amount of time you've been in business, and the intended use of the funds they may provide to decide whether you're a good candidate for a loan. Meeting this long list of requirements can be difficult, especially if your business is in its early stages.
Fortunately, small business owners looking for business financing today have plenty of options when they need to bridge revenue gaps or supplement their cash flow temporarily to pursue expansion opportunities. Alternative lenders can often simplify the process so they can obtain a small business loan in less time and get back to business as usual.
If you're a small business looking for funding options at the best interest rates and repayment terms you can find, you want a lender who specializes in connecting small businesses with funding solutions tailored to their specific needs.
Whether you're interested in equipment financing, a merchant cash advance, revenue-based financing, or short-term loans at low-interest rates, Fora Financial can connect you with the loan type and funding you need.
At Fora Financial, we provide small businesses like yours with funding options like revenue advances, working capital loans, and merchant cash advances in amounts as little as $5,000 and as much as $1.5 million. And unlike the long wait times you may see with other lenders or SBA loans, Fora Financial reviews loan applications as quickly as possible, so you'll have the funding you need deposited in your business bank account in as little as 72 hours.
A bank loan or Small Business Administration loan, on the other hand, can take months to process and approve. They can also be more difficult to obtain. 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 have different requirements than typical bank loans and take different factors into account. Fora Financial requirements are fewer, simpler to understand, and easier to meet.
We have a lower minimum credit score requirement than many lenders, and we're passionate about providing small business owners like you with the business loans your small business needs so you can continue to succeed and grow.
If you're seeking outside working capital, it's important to know what your options are and which might be the best choice for your unique needs. To help you make a more informed decision, here's a closer look at some important differences in requirements for a traditional bank loan vs. what's 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: Many traditional banks have recently become more restrictive when it comes to small business loans. Along with a lengthy loan application, banks require a significant amount of supporting information, including:
Your personal and business tax returns for the past three years
Your company's balance sheet
A recent statement of profit and loss (P&L)
Business and personal bank statements
Business and personal financial statements
Information about personal loans, such as mortgages or auto loans that you've previously received
Fora Financial: At Fora Financial, we require your business's three most recent bank statements and a one-page application to get started. In certain circumstances, we may also request:
Your month-to-date bank statements
A copy of your most recent tax return
Your P&L statement
Your balance sheet
That's it. We know that your time is valuable, so we try to make our loan application process as simple and quick 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 before they approve a loan or business line of credit.
Banks: If your business credit history is limited, most banks will consider your personal credit history to determine your ability to pay back a loan.
According to NerdWallet, banks look for borrowers with a "good" personal credit score of at least 690. 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.
3. Collateral
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 $20,000 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 who already have a strong track record of success.
Banks: From a bank's perspective, the longer you've been in business, the better.
According to the US Bureau of Labor Statistics, 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.
Fora Financial Advance, LLC has an A+ Rating from the Better Business Bureau. We're a trusted lender who specializes in helping small business owners and entrepreneurs like you access the funding you need at the best possible interest rates and loan terms so you can continue to meet your cash flow needs and expand your business.
We hope that this post has been informative and that you're one step closer to receiving the financing that your business needs. For more information about how Fora Financial can help you, reach out today. We'd love to learn more about how we can help meet your funding needs.
Editor's Note: This post was updated for accuracy and comprehensiveness in June 2024.
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
