No matter the type of small business that you’re running, you might find yourself in a position when you require additional funding. The loan that you secure for your business could be for start-up costs, product patent fees, new divisions, improvements, and even payroll. Regardless of how you’re using the business loan, it’s vital to have everything in order before applying for one. Otherwise, you might find yourself where no one wants to be; in the denied pile.
Understanding the financial state of your company is highly critical. Your potential lender is going to want to see tax records, banking statements, business receipts, and accounting information when they investigate whether or not you’re a good candidate. If you don’t have an organized system in place, the lender could see you as irresponsible, which could lower your chances of securing the loan.
Added Tip: Consider hiring an accountant to oversee the financial responsibilities of your business.
Keep Good Credit
One of the most critical parts of obtaining a loan, whether personal or business is your credit rating. The lender is always going to run a credit check and have some criteria that need to get met. When you’re ensuring that all of your bills are getting paid on time, you’re also showing potential lenders that you can pay them back. Things such as late payments, bankruptcy, write-offs, and foreclosure can affect your ability to get a loan.
When you submit your application for a loan, the lender is going to do what they call a “hard hit” on your credit report. That ultimately means that the credit check is going to show up on your report, and the more hard inquiries you have, the more it can hinder your score. You should only apply for one loan at a time because applying for too many can look bad on your credit rating, and cause you to get denied.
Understand the Loan You Need
Multiple business loans are available to you if it’s something that you need. However, understanding the exact loan is crucial to the success of your approval. Investments such as Small Business Administration loans are more complicated to get. They require extra documentation, higher credit ratings, and a 30 to 90 day processing time. If all you need is a line of credit, the requirements and processing time are much lower.
Provide Proof of Cash Flow
Banks and lenders want to see that you’re able to make at least the minimum payments on your loan, so it’s essential that you provide them with cash flow demonstration. If you’re applying for a loan for your existing business, the lender is going to look at your past tax returns as well as a current debt-to-income ratio to analyze if you can pay it back. If you’re a business that’s just starting out, ensure that you have correctly put-together plans that show the lender your business’s financial projections.
Know the Differences between Banks
You might not realize it, but there is a difference between large banks and smaller banks. The majority of the times, the large chains of banks have large business loans with much bigger businesses and corporations. Large banks do have the staff and resources available to finance small businesses, but their criteria might be stricter. Smaller banks, however, tend to build their decisions off of personal relationships. That could be beneficial if you come from a small town and know the manager of the bank personally.
Using the above suggestions isn’t going to guarantee your success in getting a small business loan, but they are going to help you. As long as you have a good credit rating, and keep your financial records organized, so you’re able to provide the lender with what they need, you should be good to go.
What experiences do you have with small business lenders? Do you have any advice for someone looking to get a business loan for the first time?