To get approved for a loan, you need to have some form of documentation. Banks will deny most owners if you do not have proof that you are producing and guarantee that you can return their funds.
If you do not have the documents that are required, you can get stated income business loans. These loans give more flexible options for proving income and getting approved.
Stated income business loans are also called no document loans because they do not require financial documents. Lenders typically request bank statements, tax returns, proof of assets and other income verification. This type of loan is commonly used by freelancers or self-employed. Freelancers may have other streams of income or cash payments that they are unable to show for proof.
Additionally, income tracking can be difficult if someone uses electronic payment systems such as Stripe, Cash App, or PayPal. Conventional lenders will not view this as appropriate documentation. However, this is where stated income business loans come in.
Business owners give a verbal or written statement of the amount of their business revenue with a stated income business loan. The lender uses the amount given to process the loan. The amount of the loan depends on what amount of the revenue the business owner gave if approved. With this loan, no proof of income is necessary, think of it like a credit card application.
One of the biggest pros of a stated income business loan is that it does not require collateral to secure it because it is unsecured. If your business is still not well established, it is a great way to get the cash you need. Also, another pro is that you can start to build your business credit which in the future can help you qualify for additional funding.
One of the cons of the stated income business loan is that it has high interest rates. In case you default on the loan, the lender protects their company by adding fees and high interest to the loan. This type of loan is also risky for lenders because there have been times where people inflate their income so that they can get larger amounts in loans but then not paying them back.
You need to have a good credit score to be approved for the stated income business loan. Lenders will also look at your personal credit file to see if you are being honest about the income your business makes that you claimed it earns.
Credit reports show a lot of information about employment even though they may not report income information. It may not be enough for lenders so they will be likely to request for you to show more proof about the income you mentioned.
Once you have been approved for a stated income business loan, you can use them for short-term business investments. Paying for low cost supplies, meals, business fees, give a better advantage than higher priced business expenses or investments.
You can also use your funds to lease or buy equipment for your business with this loan, but equipment financing loan has more benefits. With an equipment financing loan, you can get a lower interest rate and use the equipment as collateral.
Any business owner seeking funds for their business needs to educate themselves on business financing as it is critical to sustain the business. Seek a business financing expert if you have questions on what Is right for you that are going to be suit your goals.