7 Simple Things You Can Do to Improve Your Chances of Getting a Business Loan
Securing a business loan can be tough. However, approval ultimately comes down to a lender’s confidence that you can and will repay the funds you borrow from them. Consider completing these seven simple tasks before applying for funding to boost the lender’s trust in you and improve your odds of successfully landing a loan.
Solidify Your Business Plan
Some lenders require applicants to provide a business plan and others don’t. Either way, it’s wise to include a concrete business plan and a polished executive summary with your loan application. In addition to showing that you are responsible, organized, and prepared, sharing a strong business plan with the lender allows you to demonstrate why you need a loan and how it will benefit your business.
In your business plan, be as specific as possible and lay out exactly what your company does, how it makes money, and why customers pay you for your products or services. You should also talk about the market opportunity, the competitive landscape, and why your company has an advantage. Don’t forget to describe your team members, your business model, and your costs (salaries, rent, equipment, and so on). Use your business plan as a tool to convince the lender that you have both a great idea AND a strategy to carry it out and be successful.
Get Your Credit in Check
Lenders use credit scores to help determine whether or not you and your business are good candidates for a loan. Essentially, the lender wants to see that you are trustworthy and capable of paying the loan back on time. During the approval process, the lender will analyze both your business credit score and your personal credit score.
Before applying for a loan, get to know your business and personal credit reports well and ensure that everything is correct. If you find that your credit reports contain any errors, dispute them. Closely evaluate your credit histories and pinpoint any negative activity that you have the ability to remedy. You can improve your credit score by consistently making timely payments on accounts that you have open and active, keeping your debts low, and working to increase your credit limits. If you’re lacking in credit history, whether business or personal, take some time to establish and build it up before applying for a loan.
Clean Up Your Books
Your company’s financial statements and accounting records will likely be reviewed carefully by the lender when you apply for a business loan, so it’s important that you make sure that your balance sheet, cash flow statements, and income and loss statements are complete, correct, thorough, and easy to digest.
In addition to tidying up your financial statements yourself, it’s recommended that you have a certified public accountant take a look at them as well before submitting a loan application. While it’s typically not required, most lenders prefer financial statements that have been audited or reviewed by a CPA.
Review Your Online Presence
Many lenders will perform due diligence during the approval process, which includes reviewing the information available to the public about your company online. Before applying for a loan, look over your company’s website and make sure that it’s up to date and looks professional. In addition, review your company’s presence on social media sites such as LinkedIn, Facebook, and Twitter and make any necessary changes or deletions.
It’s also a good idea to check for feedback and reviews that your company may have received on third-party sites and attempt to respond to them and remediate any potential issues if possible.
Do Your Homework
Generally, lenders want to work with knowledgeable, educated, experienced borrowers who know what they’re doing and understand what they’re getting themselves into by taking out a business loan.
You can increase a lender’s trust in you and improve your chances of getting approved by educating yourself about small business lending options and procedures. If you’re not familiar with how business loans work, the differences between various loan types, or what common industry terms mean, take some time to research and read up on these topics until you have a firm grasp on them.
Have Specific Ideas for Fund Use
Lenders will want to know exactly how much funding you are seeking and how you are going to employ the loan proceeds, so it’s important to nail down these details beforehand. For example, will the funds go towards inventory? Equipment? Expansion? Hiring? Marketing? Research and development?
Once you’ve determined what the loan will be put towards, work out a realistic borrowing amount to cover those needs. Be careful not to overestimate costs and ask for too much or underestimate expenses and ask for too little. Rather than guessing how much cash is required and slapping that amount on your application, take the time to crunch the numbers. Research and calculate precisely how much money you’ll need when all involved costs are considered.
Choose the Right Product and Lender
Various types of small business loans are available, and not all loans are created equal in terms of what will be the best fit for your business. You can avoid wasting time filling out applications for loans that aren’t suitable for your business and improve your approval odds by applying for the right type of loan. Common business funding types include installment loans, short-term loans, equipment loans, working capital loans, lines of credit, merchant cash advances, invoice factoring, and small business credit cards. The right option for you will depend on the needs of your business and your desired repayment terms.
In addition to multiple business funding products to choose from, there are also several different types of lenders that can provide you with a business loan. For example, you can work with a large commercial bank, a local community bank, a direct online lender, or a peer-to-peer lender. Each type of lender will offer diverse products and have different requirements for borrowers. Some lenders place value good credit while others care about annual revenue. Carefully researching various business loan providers and their requirements before putting effort into an application will give you insight into which lenders you’ve got the best chances of qualifying with.
Bio: Sarah Hancock is the Chief Editor of Best Company’s business loans blog. She frequently writes about business-related topics and has contributed to Forbes, Reader’s Digest, Yahoo, Ladders, MyCorporation, Fit Small Business, and several other publications.