Getting approved for a small business loan can seem challenging. But, it’s more feasible than you may think. More than 70 percent of small firms surveyed by the U.S. Small Business Administration used financing in the last year. Around the same proportion of companies took out loans under $250,000. Obtaining working capital funding for your business is not impossible. But to maximize your chances of being approved, pay close attention to application requirements and consider these four tips:
1. Gather the Right Paperwork
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Getting a business loan usually requires several documents to establish trust between your business and potential lenders. These may include balance sheets, bank statements, and tax returns. Providing this information helps demonstrate that your business is financially responsible. And therefore, a good lending risk. However, not all lenders ask for the same things. Some may also request personal financial information or an updated business plan. So, be prepared to share those as well. Pay attention to lending firms that stick to the essentials needed to review your business loan application, with documentation that supports the following details:
Positive Cash Flow
Business lenders prefer borrowers that earn more money than they spend in an average month. This means you are more likely to repay the loan. Provide copies of recent bank statements or balance sheets to prove your business is earning positive cash flow and is projected to stay on track.
Commonly referred to as gross receipts or sales. Revenue is the amount of money coming into your business in a given timeframe. Lenders often use monthly revenue to assess your ability to pay back a loan. The higher your revenue, the better. This is also proven through bank statements or financial reports.
Getting approved for financing with a bad credit business profile is not impossible. But it may make the process more difficult. Lenders each have their own ways of measuring creditworthiness, with FICO scores being a common and convenient tool. If you think your credit score is low, prepare some additional documentation that might help lenders understand why.
2. Fix Your Credit
You stand a much better chance of getting approved for a small business loan if you work on bettering your credit. To do this, you must be aware of your business’s current credit history. Seek out your company’s credit report through reputable monitoring agencies like Experian or Dun & Bradstreet. Then, carefully review it for any mistakes or glaring issues that might be negatively impacting your overall score.
Fixing a mistake on your credit report can drastically improve your chances of getting approved for a small business loan. Major errors are rare, but they can happen. If you find a misspelled address or inaccurate information, report it to the credit monitoring agency as soon as possible.
If your business credit report contains negative marks that are accurate – like reports of late payments or a past public judgment – getting a business loan is not a lost cause. Lenders will review your credit report as part of your application, so be upfront about any bad news. If you can show lenders you are being proactive about repairing a poor credit score, you may increase your chances of getting approved.
On the flip side, if you have limited credit history, consider getting a business credit card or line of credit from one of your existing vendors. This will allow you to build your business credit history. As mentioned, some lenders will take your personal finances into account. So, focus on paying all bills on time and in full.
3. Work Closely with a Lender
The process of applying for a business loan runs smoothly when both sides are on the same page. Find a lender that will be direct and honest with you about how or if they can help your business. Of course, that means you need to do the same. Explain in detail what you expect from the lender and how you plan on using the funds.
Both lenders and borrowers must have clear expectations for the relationship. Getting specifics about the lender’s requirements and application process will help you understand if they are a good fit for your business.
Keep in mind: online lenders tend to have quicker application processes and faster approvals. They may also approve business loans that traditional banks tend to overlook. As an added benefit, they deposit the funds in much less time than their traditional counterparts.
4. Manage Credit with Confidence
Remember that your business credit history and relationship with lenders extends beyond the world of capital financing. As explained by credit agency Experian, a business’s credit report influences more than its ability to simply obtain a loan. It also helps determine:
- Loan amount.
- Interest rates paid on loans.
- Insurance premium pricing.
- Trade credit terms with your suppliers and vendors.
That means most of the financial activities of an organization influence loan approval. For example, a wholesale trade firm that makes a point of paying suppliers on time may be approved for a loan with lower interest rates. Or a construction company seeking financing might cut down considerably on insurance premiums by maintaining good relationships with creditors. As you learn more about the process of getting a business loan, you’ll find the sum of your company’s past financial interactions plays a major role in increasing your chances of approval.
To prepare for a business loan application and ensure the best chance of approval, do your homework on each of these issues. Analyze the financial needs of your company. And weigh the costs and benefits of securing a business loan. Be sure to research the small business lending market, but don’t shop around by applying to several lenders at once. Prospective lenders may perform a “hard” credit check before deciding, which can slightly lower your credit score and linger on your credit report. A targeted application approach will keep your business credit score in check while maintaining your focus on the best lender for the job.
When it comes down to it, improving your chances of getting approved for a small business loan is about choosing the right lender. QuickBridge’s simple, fast approval process means you could have a short-term loan to cover business expenses within 24 hours. Contact QuickBridge to speak with a funding advisor about obtaining financing for your small business.
Article by Ben Gold, President of QuickBridge