When you invest time and effort into applying for a small business loan, and when your company needs outside funding to thrive, you want to receive approval back from the lender. So, you want to submit the strongest application you possibly can to maximize your chances of your company getting the capital it needs.
There are a few key actions to take when applying for small business loans that can make the difference between that approval you want and the rejection you do not.
Here are four tips to keep in mind when you are trying to get approved for a small business loan.
Pick a Business Loan That Fits
All business loans are certainly not created equal. Doing your research to figure out which loan will best suit your specific business needs will go a long way toward getting approved.
There are a few different parameters to consider when it comes to loans:
Different types of loans bring different terms, conditions and benefits. According to NerdWallet, here are some popular types of financing to explore:
- Term loans: Receive a sum of cash up front and repay it in installments over time.
- SBA loans: Borrow with the U.S. Small Business Administration as a guarantor.
- Line of credit: Think of this like a credit card, but for business funds.
- Invoice factoring/financing: Receive advance payments on your invoices.
You can get a business loan from many sources, including banks, credit unions and online lending companies. You will notice loan characteristics vary between them — for instance, traditional banks and credit unions may require a higher credit score while offering lower interest rates; online lenders are often more flexible about credit score but may charge more in terms of interest.
It is worth exploring the full gauntlet of lenders to find a good match so you can improve the terms you receive.
Optimize Your Credit History
Some lenders require a certain credit limit. Others may be willing to work with borrowers who have poor or average credit, but the trade-off will almost certainly be higher interest charges. This means it is in your benefit no matter what to do everything you can to make your company’s credit history as strong as it can be before submitting any applications.
Just like when it comes to consumer credit, the biggest factors are going to be payment history and credit utilization ratio. It is also important to check your business credit report routinely so you can notice and dispute errors that may be dragging down your score.
Strengthen Your Business Plan
You can expect potential lenders to want to see at least part of your business plan before they agree to hand over any cash. The most important elements when applying for a loan for business tend to be your executive summary — a short overview of everything someone would need to know to understand your company — as well as your financial statements. The experts at Yahoo Small Business recommend keeping your business plan submission concise but effective, like an elevator pitch.
Gather Your Documentation
Different lenders may want to see different things to make sure your company is a good fit for funding. If you gather up your documentation ahead of time and keep it organized, it will be no sweat to pull whatever you need to apply. This is a compelling reason to tidy up your desk and get your electronic statements in order so the application process goes smoothly.
Getting approved for a business loan is a good feeling — it means you will have the capital you need to function well for the foreseeable future. These tips will help you prepare to submit a strong application to the lender of your choice.