can be a demanding task and after applying there is no guarantee that you will get approved. Lenders must be prudent when approving people for a loan. They need to be confident in your ability to repay the loan, otherwise they will be more hesitant to give you funding.
Consider the Time-Frame
It is important to understand that it is unlikely that you will sign a few papers and get a business loan moments later.
When applying through a bank, the loan approval process can take a few weeks or even some months. If you apply to an alternative lender, it will take less time. Still, it is important to consider when you will require financing and determine the bank or lender will provide the loan in time.
If you need financing right away, you need to start your application as soon as possible. Many business owners make the mistake of applying for a loan after they have already started a big-budget project., or need financing due to an emergency. this creates complications and you can run into financial struggles if you do not loan on time.
Prepare a Solid Business Plan
Your business plan should outline your plans in a concise manner. Consider upcoming challenges and take time to make solid calculations for how you will use a business loan. The more specific you are, the easier it will before the lender to determine if you qualify and provide you with a deal that fits your needs.
Your business plan should include the following:
- Profit and loss statements and projections
- Business and personal credit scores
- Tax return documents
- Bank statements
- Copies of relevant legal documents including articles of incorporation, contracts, leases, and licenses and permits to operate
Improve Your Credit Scores
To qualify for a business loan, your personal and business credit score will be taken into consideration. Having favorable credit scores is crucial for people who are applying for business loans, and a poor score can often disqualify you. You should build a respectable personal and business credit score so you can increase your chances of approval.
To improve your credit scores, identify suppliers that report to business credit bureaus, open a separate business checking account, and pay all your bills on time. In addition, paying off any debt that you’ve accumulated can majorly improve your score. Ultimately, running a financially responsible business will enable you to boost your credit score, and increase the likelihood that you’re approved for a loan.
Not everything can be done alone, sometimes getting assistance is the best option. Consulting a business loan professional can help you improve your application so that you have a better chance of approval. These professionals will determine how much money you need and will be able to provide tips on how to receive the best possible terms. You might also benefit from asking fellow business owners about their experiences.
Have Your Cash Flow Handled
Cash flow issues are a pain point for small businesses, especially those with large upfront operational costs and equipment. But if you’re applying for a small business loan, you want to make sure you’re consistently staying above water with your cash flow.
This is especially important in light of your debt-service coverage ratio (DSCR), something many lenders look at when deciding whether or not to approve your application.
The Bottom Line
To improve your odds of getting a business loan, the steps listed above will help you out significantly. Consider doing them all before you apply so that you have a better chance of receiving the funds you need for your small business.