Tips For Getting Approved For a Small Business Loan

Opening a small business line of credit may require meeting your bank’s underwriting standards. But where credit history is lacking or subpar, you can boost your chances by paying your bills on time and addressing inaccuracies in your credit reports.

thanks to a large array of small business finance tools, nowadays each lender can be financed by practically every credit score and situation.

Know Your Options

Finance is the oxygen that your company could breathe, yet the challenge is that loan requirements vary almost from lender to lender and from loan product to loan product. So, you must make sure that your business has the documents needed to qualify for financing, namely your business plan, your annual revenues and your personal or business credit scores. You make qualification easier with strong cashflow management, good personal/business credit scores and enough business experience.

Finance options include bank loans, lines of credit and commercial real estate options. Being more knowledgeable on the different finance options available to small businesses will make it more likely for you to be approved and ultimately increase your chances of success.

Know Your Requirements

The size of loan is contingent on the lender as well as on the type of loan, and lenders calculate how much you can borrow based on the solidity of your application. This is usually measured in terms of annual business revenues and credit scores. Generally speaking, smaller businesses qualify for larger loan facilities than larger businesses.

You are required to submit an executive summary before applying – three to five pages outlining your business and further expansion plans, as well as providing personal and business credit reports and tax returns.

At a minimum, your lender will want your personal guarantee or some form of collateral (either accounts receivable or real estate), and will need to understand how you will use the proceeds of the loan and the impact those dollars will have on your community. One tiny bit of missing or inaccurate information can delay the process or see your request rejected entirely.

Know Your Credit Score

If you want the best shot at getting a small business loan, you need to have good personal and business credit scores. Being in the acceptable risk range for lenders doesn’t automatically guarantee your access to funding, but the higher your scores, the more likely you are to be approved, and the better the loan terms you’ll secure if you do.

Pay bills on time, limit hard inquiries to only once every two years, and keep credit utilisation low, and you will see your score go up. So will a good business plan that’s been in business at least two years. Small-business lenders take bank balance, assets and revenue into account in their lending decisions.

Know Your Collateral

You need collateral when applying for a small-business loan and lenders ask for it during the application process. They’re basically asking for collateral as a form of insurance against default on your loan. Real property, inventory, or other equipment can be offered as forms of security; other assets could be company cars and owners’ homes – although not that, often, for an SBA loan.

If you will pledge assets as collateral, make sure you know the extent that your lender will permit you to borrow, based on the value of your collateral and the loan-to-value ratio. Finally, if your lender requests that you execute a personal guarantee or UCC lien, make sure that you have review these agreements with your attorney.

Know Your Cash Flow

Cash flow is one of the considerations a lender will look at before granting you a small business loan – they typically want to know that you will be able to pay them back and, in general, will make it a point to pay for your rent before treating yourself to a manicure.

A well-crafted business plan and financial projections demonstrating your ability to repay the loan is the best way to approach this issue. In the eyes of lenders, a high debt service repayment ratio (DSCR) can mean the difference between being approved or not.

Finally, be sure to read all loan documents thoroughly, and be aware that you can ask lenders to change any wording that you’re uncomfortable with. Interest rates can be expressed in many different ways. To compare one loan with another, be sure you understand all of the elements in any loan document you’re reviewing.