Almost every small business needs to obtain outside financing at some point or another. However, it is well-known fact that securing a business loan is not an easy task. According to an article published by Fundera, approximately 80 percent of owners of small businesses get rejected when they apply for a bank loan. Getting into good lending shape is not a surefire way to get your loan application approved, but it can certainly turn the odds in your favor. Here is a look at how you should prepare yourself before applying for a business loan.
In most cases, lenders will look at a number of things when they are determining your eligibility for a business loan, including time in business, cash flow, collateral, and credit score. The longer you are in business, the better your chances. If you are just starting out, it is a good idea to incorporate your business before you apply for a business loan. As for cash flow, lenders will evaluate your company bank account’s inflows and outflows, including average daily balance, deposit volumes, and number of non-sufficient funds. Make sure all your financial records are accurate and updated.
Also, lenders need you to provide collateral so that they can be sure they can recoup their costs if you default on your loan. As such, you need to document all your assets, including property, equipment, and other things, as well as the value of each asset. Lastly, your personal credit score is an important consideration for lenders, because it reflects your overall financial management ability. If your credit score is less than impressive, it may be worthwhile to work with a credit repair company. One way to find a good credit repair company is to read a review such as the feedback for the Lexington Law Firm or Credible.com.
Submit a Complete Application
Lenders will review your application very closely, looking for omissions, discrepancies, and other reasons to reject your loan application. To increase your chances of success, you have to make sure that you provide all the necessary documents, including:
- bank statements for the past three to six months
- profit and loss statements for the past two years
- tax returns for the past two years
- information on debts, including liens, leases, and credit adjustments
- letter of explanation to explain why you need financing
Choose the Right Financing Option
Many business owners think that the best loan is the one with the lowest rate, but that is not always the case. You should also consider the size of the loan, repayment term, payback amount, and the speed of funds transfer. To find the right lender and financing option, you need to spend some time doing research and compare financing deals offered by different lenders.
Being properly prepared will give you an advantage when you apply for a business loan, because it will help you impress and gain the trust of lenders. However, the final result still depends on your ability to meet their requirements.