With over 30.2 million small businesses in the US, the need to get an edge over your competitors keeps getting more urgent. You may have the best business idea, a master fail-proof plan, and an excellent and committed team to help execute your dream. However, without capital, your plan is nothing but an empty plan.
Typically, small startups face the most challenges when trying to get a loan. They have little to no credit history to reference and have little to no assets to secure the loans.
The risk is even greater because if you do have an asset, and you default on your loan, you may lose your asset. How do you get that loan in the first place? What are the tips to taking out a business loan for your business, ensuring your dream becomes a reality?
What to Do When Taking out a Business Loan to Get Approval
In today’s tough economic climate, your business needs every edge it can afford to make it out strong. As you make your loan application, you need to do everything in your power to allow you to be hopeful. Here are some tips to use when taking up a business loan.
1. Clean up Your Books
Applying for a business loan with shoddy books of account and business documentation is a guaranteed way for your application to fail. Ensure you present clean, organized, easy to understand, and otherwise in order books. If possible, consult a financial advisor or an accountant to review your business’ books and ensure they are presentable.
Even without the loan application, your books should always be in order if you are looking to have a successful business.
If your business is applying for a loan, your accountant is obviously aware. Consult them on where to begin the loan search. Also, ask them to prepare the right documents including an update of your business tax returns.
2. Deal with Your Credit History
Just because you have a functioning business that is making a profit, it is not a guarantee that you have a great credit score. It is not just about your business. Your credit score plays a big role in your business loan application.
While you may assume that lenders will separate your personal credit and your business credit, they will always consider your personal credit history in order to determine your risk level. Simply said, you cannot escape your credit history. If you are worried about this stage, ensure you look into ways to improve your credit score.
If your business has a credit card, and some more debt, ensure you have a reasonable amount of income to support these debts and a new loan. This will ensure that your business loan repayments will not leave you with an income to carry on your business.
Credit utilization and payment history comprise the bulk of your score. Paying the bills on time, and using less of the approved credit line can help you and your business bump up your score a few points in a few months.
3. Finding the Right Lender
There are many lenders you can approach if you are looking for a business loan. Choosing the right one will increase your chances of getting the loan. Some of the choices include the following.
- Large national financial institutions: You may approach your current bank for a traditional business loan. If you have banked with them for a long time, the lender may consider the relationship you have with them.
- Alternative lenders: An alternative lender helps bridge the gap between big banks and community lenders. They have moderate requirements. These alternative lenders can help your business secure fast business loans.
- Their focus is on potential growth versus the credit scores of business owners. Find out what alternative lenders are available in the community in which your business operates.
- Community lenders and Credit unions: Locally owned bank lenders with interest in the economic growth of a given area is a good fit for locally focused businesses.
4. Have a Detailed Plan for the Intended Use of the Money
When speaking with your lender give full information and plans on how you intend to use the money. Ensure your response is not vague or too general. This will lead to automatic disqualification of your loan.
For the lenders to take you seriously, present to them a quality business plan. It should be well prepared and give a clear sense of where your business headed. If you cannot create a fully detailed plan yourself, work with an accountant or a financial adviser to polish the financial projections.
Lenders need assurance that the loan will be in the hands of a capable manager. They need to understand how you plan to invest the money they lend you and that the returns are good enough. They are more likely to invest the money in a company looking for a growth opportunity than to help give you cash flow.
5. Avoid Applying to a Lender Who Has Rejected You Before
If a lender denied your application before, chances are, they will do it again. Therefore, it is a wiser move for you not to reapply to the same bank or alternative lender very after they denied you the loan.
Luckily, there are many business lenders to choose from, and you can just go to the next suitable one.
In addition, after a lender rejects your application, do not be discouraged. There are many small business lenders today, each with different products and different requirements for eligibility. Therefore, if you miss an opportunity with this bank or lender fear not, consider another one.
Choose a lender who provides you with additional benefits. Deals struck connects you with the resources you need to achieve your dream future. Discover more about these services and get the funding you need for your business today.
6. Be Organized and Well Prepared
Order and organization play has an important role in whether or not you will receive the approval for your business loan. If a lender asks you for any specific information, you need to provide it in a timely manner.
A lack of organization could show them that you are a risky venture.
Improve Your Odds When Taking Out a Business Loan
Being approved for a business loan is not easy. You have to show the lender that you are capable of running a successful profit-making enterprise. Use these tips when taking out a business loan to improve your chances.
Read more on our blog on how you can grow your business to greater heights. You may also try to take out a secured loan against a property you own because it is for sure you do not want to lose the property.