If you’re looking to get approved for a small business loan, you may be feeling a bit overwhelmed. After all, the loan application process can be complex and involves many steps. The good news is that with a bit of preparation and know-how, you can increase your chances of getting approved. Here are ten helpful tips to ensure you get approved for that small business loan.
1) Have a strong business plan
A strong business plan could make or break your loan application. It’s your one-stop shop for convincing lenders that you’re able to back up your business idea with actionable steps. Your business plan should outline what you plan to do with the loan. It should also include details on your company’s operational expenses, revenue projections, and expenses.
Your lender will want to see that your business plan is realistic and has a good chance of success. A strong business plan is the best way to demonstrate that you have your business’s future in mind when applying for a loan.
2) Know what type of loan you’re applying
Different types of loans have different requirements. So it’s important that you know which type of loan you’re applying for. A common mistake made by new business owners is applying for a loan that’s beyond their means.
For example, it may be tempting to apply for a large loan that could be used to purchase necessary equipment or renovate your space. While this may sound like a good idea, it’s not always a good idea to go for the biggest loan you can get. This is because larger loans are harder to get approved for.
3) Understand your business’s credit score
Credit scores are used to assess the riskiness of a loan. If your business has a low credit score, then you have a higher chance of being denied for a loan. Your personal credit score is not what lenders will be looking at. Instead, they’ll be looking at your business credit score. This is determined by a company called Dun & Bradstreet.
If your business has a low credit score, then you may be forced to pay a higher interest rate for your loan. If you’re unable to get approved for a loan due to a low credit score, there are steps you can take to improve it. One way to improve your business credit score is to make timely payments. You should also try to keep your outstanding balance low.
4) Show that you’re a responsible borrower
Being a responsible borrower means showing that you’re trustworthy and will repay your loan on time. How can you do that? First, you’ll need to have a plan for repaying your loan. You should also have a good credit score and a solid track record when it comes to paying back any debts.
You’ll also need to put together a financial statement. This is a document that shows your lender your current financial situation. Your financial statement should include your business’s cash flow, profit and loss statements, and balance sheets.
5) Have a healthy cash flow
When lenders review your loan application, they’ll look closely at your cash flow to ensure that you have enough money to repay the loan. Having a healthy cash flow is important for two reasons. Firstly, it shows that you’re able to repay your loan on a timely basis. Secondly, it gives the lender confidence that your business won’t go bankrupt.
There are a few ways you can improve your cash flow. You can revise your business’s operational expenses. You can also increase your revenue or ask your customers to pay their bills on time. You can also consider asking your employees to work on a commission-only basis.
6) Demonstrate that you’re using the loan for a good purpose
When you’re applying for a small business loan, your lender will want to know that the funds are going to be used for a good purpose. Having a clear business plan will go a long way toward showing that you’re using the loan for a good purpose.
Your business plan will outline what the loan will be used for. To further demonstrate that you’re using the loan for a good purpose, you can offer collateral. This is something you offer your lender as collateral in case you default on the loan. It’s usually in the form of some sort of asset like real estate, inventory, or equipment.
7) Show that you have a solid collateral
Having a good business plan and offering a solid collateral are two ways to show that you have a solid business. Having a good business plan shows that you’re serious about your business and have a plan for how you’ll repay the loan. Offering a solid collateral shows that if you default on the loan, you’ll have something the lender can sell to recoup the loss.
What type of collateral should you offer? Your lender will let you know based on the type of loan you’re applying for. You should also consider the state of your business. If your business is in a healthy state, then you’re more likely to be approved for a loan without having to offer collateral.
8) Get all the necessary documents
Your lender will likely require you to provide certain documents. They’ll let you know what you need to submit with your loan application. It’s important that you get those documents together and submit them promptly.
Your lender will use your documents to verify the information you provided in your loan application. It’s important that you provide accurate and up-to-date information. Your lender will also use your documents to determine whether you’re eligible to receive the loan.
9) Know the lender’s requirements
While you’re getting your documents together, you should also familiarize yourself with your lender’s requirements. You can do this by reading your loan agreement, if you’ve already been approved. You can also speak with your loan officer. Your loan officer can help you understand what you need to do to be approved for the loan.
You should also keep in mind that your lender may change their requirements based on the current industry climate. If you’re applying for a loan during a time of economic uncertainty, your lender may ask you to submit additional documentation. This could lengthen the loan approval process.
10) Seek advice from a financial advisor
If you’re having a hard time getting approved for a small business loan, then you may want to seek advice from a financial advisor. A financial advisor can help you identify any issues with your loan application and offer solutions. He or she may be able to assist you in improving your credit score or offering a different type of collateral.
Financial advisors can also help you identify alternative financing options if you’re having a hard time getting approved for a loan. And if you’re having a hard time getting approved for a small business loan, it’s a good idea to see if you qualify for any government grants. There are many great grants available to entrepreneurs who are trying to start a new business or fund an existing one.