How to Improve Your Chances of Securing a Loan

Applying for a small business loan can be time consuming and a stressful process. Many business owners want to know their chances of getting paid before investing their time into searching and applying for loans.

Your chances of getting approved for a loan is never black or white so the best way to know is by applying. There are some benchmarks that small business owners should be aware of that will give them a better idea of what lenders are looking at, and what their chances are of securing a loan.

The Important Parts of Your Loan Application

Every lender is different, some lenders might put more emphasis on some criteria that other might not. However, there are a few factors that most lenders will consider important.

Your Personal Credit Score

Lenders will want to see your personal credit score because they want to learn more about your history handling past debt. If you have not handled your debt in the past correctly, lenders will be hesitant to lend you money. They are afraid you will not pay them back. If you have a poor credit history, try to work on improving it before you apply for a loan to increase your chances of securing it.

Your Annual Revenue

Lenders want to know that you have enough cash flowing in to handle payments for the loan. Revenue is also important to determine loan size. Most of the time you can only qualify for amounts around 15 percent or less than your annual revenue.

Your Time in Business

The longer your business has been around, the better your chances are for securing a loan. Lenders will feel more secure when you have been in business for over two years. If you are under two years, you will have less options of business loans to qualify for.

Your Average Bank Balance

Lenders want to know how you manage your cash and that you have some cushion on hand in case your business has an unexpected emergency. Make sure your bank account looks solid before applying. Almost every lender will ask to see a few months of business bank statements to verify your bank balance.

Things to Keep in Mind

There are some minimum requirements that lenders have for an application to be considered. Sometimes these minimums can be hard to find so you can use these benchmarks to keep in mind to decide which type of loan product your business should focus on.

SBA loans

SBA loans are like traditional ban loans except a portion of them is guaranteed by the SBA which makes it easier for riskier borrowers to qualify.

  • Time in business should be equal to 2 or more years
  • Over $50,000 in annual revenue
  • 640 or higher in personal credit score
  • 3 or more years out from a bankruptcy
  • Cannot have a loan out with another lender

Medium-term loans

Medium-term loans are traditional term loans found online that tend to be two to five years in length.

  • Time in business should be 1 or more years
  • $150,000 or more in annual revenue
  • 600 or higher personal credit score
  • Must be 2 or more years out from a bankruptcy
  • If you have a loan out with another lender, you might be able to work with some medium-term lenders but not at all
  • Medium-term loans are a great product for refinancing debt

Short-term loans

Short-term loans are three to 18 months and have daily or weekly payments.

  • Time in business should equal 6 or months
  • $65,000 annual revenue
  • 500 or more personal credit score
  • Must be one or more years out from a bankruptcy

Accounts receivable financing

Accounts receivable financing allows small business owners to use unpaid receivables as collateral for a cash advance.

  • Time in business should be 6 or more months
  • $50,000 or more in annual revenue
  • 500 or higher personal credit score
  • Must have outstanding b2b accounts receivables
  • It is okay to have a loan out with another lender

Startup loans

Startup loans are for young businesses that have little financial history who are looking for traditional debt financing.

  • Personal credit score of 700 or more
  • 3 years or more out from a bankruptcy
  • Cannot have a loan out with another lender

The Bottom Line

These are just some of the options that you can find online. If you do not meet the requirements for these, there are other products you might qualify for. The best way to know if you will qualify for a business loan is by applying. However, before you speak with any lender ensure that you meet their minimum requirements.