Business loans are incredibly useful financial tools for growing your startup into the business of your dreams.
However, because business loans typically amount to tens or hundreds of thousands of dollars — even millions of dollars for some larger organizations — lenders are notoriously choosy with which loan applications they will accept.
Being rejected by lenders again and again can make it all but impossible to achieve business success, so if you are interested in pursuing a business loan, you need to know the following tips for increasing your likelihood of a swift acceptance:
Consider Working With All Types Of Lenders
Banks are notoriously picky regarding the borrowers they accept; bankers typically only entertain applications from well-established businesses with exceedingly high credit ratings.
Though banks do tend to offer attractive interest rates, low fees and other advantages, you might never obtain the qualifications necessary to earn a loan approval from a bank.
Therefore, you need to consider the possibility of working with other types of business lenders.
Online lenders specifically are much more lenient in their requirements from businesses, and many will happily walk you through the steps of how to get a small business loan that fits your needs.
Of course, you should try to vet different lenders before you agree to work with them, to ensure that you are getting the best loan you can for your business.
Have A Clear Plan For Your Loan
Lenders are more likely to extend a loan offer if they are relatively confident that your business will be able to pay them back in full and on time.
This confidence is built through evaluation of your business plan, which should detail how the loan will be used to grow your company.
Therefore, you should never apply for a loan without knowing exactly how the loan will be used and how you will pay it back.
Some typical reasons for seeking a business loan include business expansion, inventory purchasing, equipment updates and cash flow improvements.
You should be able to demonstrate how your plan will strengthen your business, to ensure that repayment is possible.
Build Good Credit — For You And Your Business
Though not all lenders look for perfect credit on business loan applications, a good credit score is certainly a powerful tool for receiving approval for business loans.
In many cases, lenders will look not only at a business’s credit rating but at the credit reports of the owner, president or CEO.
This is especially true when a company is young and lacks sufficient credit history; the personal credit of business leaders might be some of the only indications that lenders can use to determine repayment behavior of an institution.
Therefore, you should do what you can to improve not only your business’s credit score but your own, as well.
You should put effort into keeping your debt-to-income ratio in check, make payments on time and avoid any new hard checks on your credit, among other credit-building behaviors.
Organize Your Financial And Legal Documents
Different lenders will request different documents within their loan applications, and you should be able to tailor your application to an individual lender’s expectations.
Still, an application will be easier to complete correctly if you have all of your business’s financial and legal documents well-organized and at hand. Some examples of documents often required in business loan applications include:
- Cash flow statements
- Bank statements
- Tax returns
- Income sheets
- Profit & loss reports
- Business licenses and registrations
- Commercial licenses
- Owner’s equity statement
- Owner’s resume
Prepare A Collateral Solution That Makes Sense
If you are an exceptional business loan candidate, you might receive approval for an unsecured business loan — but this is exceedingly rare.
Much more likely, your lender will have specific requirements for collateral, which they will seize if you are unable to repay your loan according to its terms.
Some loans have obvious collateral options built-in; for example, commercial real estate loans use the real estate as collateral, and equipment loans will use the acquired machinery as collateral.
You might be able to use a blanket lien to secure a loan, though this could put your business at significant risk, as your lender might seize any business assets to repay your loan.
Requiring a business loan and receiving a business loan are not the same.
If you are in need of financing, you need to work hard to make your loan application as attractive to lenders as possible, which means taking the above steps to receive swift and certain acceptance.