If you are thinking of starting or expanding your business but do not have sufficient funds, you might consider taking out a small business loan. You might hear from other businessmen how hard it is to qualify for a loan. But with enough preparation, you can improve your chances of being approved. In this article, we will talk about what you can do and prepare to meet what lenders are looking for.
It is especially harder to get a loan from commercial banks, but there are other options. Even if you cannot get loans from banks, there are other lending companies and alternative lenders that you can ask for help.
Here are five things that you can try to improve your chances of qualify and being approved for a small business loan.
Improve your Credit Score
Credit score is what lenders use to gauge how likely you are to pay back the money you borrow. Although, it is not the sole indication for someone’s credit worthiness, it is the main thing that a small business loan provider will look at. The lenders will look at both your personal and business credit score, so you should increase both.
The higher your credit score is, the better. For your personal credit score, it should at least be 650 or more. Credit score for businesses are scored from 0-100. According to the US Small Business Administration, your business credit score should be at least 75. If your score is less than 75, your chances of being approved for a loan also lowers.
Here are some things that you can do to improve your credit score:
- Always be in time when it comes to paying your bills. A lot of late payments contribute badly to your credit score. So if you want to maintain a stellar score, you should always be able to pay your bills before their due dates.
- If you were ever late or missed your due dates, you should make it a point to be on time the next time your bills come. Being current on your next bills will help and continue to increase your credit score.
- Make sure that you don’t have high balances on your credit cards. If you always have a high outstanding debt, this may lower your credit score. So if possible, keep your credit balances low.
- Don’t move your debt around, rather pay them off. The best way to improve your score is to pay your debt.
Know the Minimum Qualifications of Your Chosen Lender
Every SBA loan lender has a different qualification and requirement for their borrowers. If you have chosen your lending company, be sure to research what they require to know if you can comply with it. Pick a lending company that you can meet the requirements of. Because if you can’t meet even their minimum requirements, you are sure to be rejected. You can search for small business loan reviews to know what companies are looking for.
To save you from further research, here are the most common requirements for SBA loan companies:
- You have to be rejected by a private lender first. If you want to qualify for an SBA loan, the lending company have to be sure that you cannot come up with the money on your own, otherwise why would you need the loan in the first place.
- Your business has to operate to gain profit. You are not eligible for small business loan if you are running a non-profit organization.
- You are supposed to be running or will be running your business in the United States.
- Your business should be small as per the standard of the US Small Business Administration.
- You should be able to show why you need the loan. A business plan might be needed to show where the money will go and what it will be spent on. And your business must have an acceptable purpose.
- No outstanding debts from the government. You should be free from any debt obligations at present or if you ever had a loan previously, there should not be any delinquent tags on you.
Gather Needed Documents
There are many different types of loans that you can apply for. And each loan will require additional documents. So before you start, look the things you should consider before finding the right business loan. But in general, here are basic documents that you will be required to submit when you are applying for a loan from the best small business loan providers:
- You will need to submit both your personal and business income tax return. If you are starting a business and have no business income tax returns yet, the personal one will suffice.
- Balance sheet. This is a document that will tell of the condition of your finances. The balance sheet includes all the assets, liabilities and equity of your business. This will be needed to give the SBA loan provider an idea on how your business is doing and will it have the capability to pay back the loan being borrowed.
- Income statement. Also called the profit and loss statement. This is the document that tells of your business’ financial performance. It includes your revenues and expenses from your both operating and non-operating accomplishments.
- Business and personal bank statement.
- A clear picture or colored photocopy of your driver’s license or any valid ID.
- Leases of your business place and your business’ license to operate.
- Your and all of your partners’ resumes.
- If you have no established business yet or been in operation for only a short period of time, your financial projections might be needed.
- If you are a corporation, then the articles of incorporation are also needed.
Create a Sound Business Plan
In the article, How to Convince an SBA Loan Provider to Finance Your Business, it talks in detail the things you need before getting a business loan. That includes a great and sound business plan. If you want to your SBA loan program to be approved, you have to make a plan that they will be glad to see materialize.
If you want to create a winning and attractive business plan, be sure to include these essential components:
- Executive summary. This is where you will put the summary of your plan. This will be like an overview of what you want to accomplish and how you plan to do it. This is usually a one or two page summary of the whole plan.
- Company description. This is basically what your business and company is all about. Include here what products or services you are offering, and what your objectives and goals are.
- Products or services. This is where you will describe in detail what your business will be offering to your clients. Nothing is original anymore, so try your best to paint your products in unique light and make it appear like it is a product that can’t be found anywhere else.
- Sales and marketing. This is where you will put your ideas on how you plan to market your products. What strategies will you employ so that people will be attracted and buy your products.
- Management team. If your business is not a solo project, include in this part all the people who will be responsible in handling the business with you.
- This will cover how you plan to run the business. That includes labor, facilities, process, materials and anything that will be needed in the day to day operation of the business.
Provide a Collateral
To increase your chances of being approved, you should provide a collateral that is equal or more than the amount of what you are borrowing. This can include any real estate or asset that is in your name. Providing a collateral will show the lending companies that you are serious about paying back the money you owe them thus increasing your chances of being approved. If you are unable to pay your loan, your collateral will be seized by the small business loan provider.
There are lenders that will not require collateral. That includes online or alternative lenders. But be careful if you plan to deal with them, because most of the time they put very high interest rates and hidden fees in their dealings. If you are planning to go this route, you should read reviews of small business loan providers to be sure that you will only transact with trusted companies. If you follow the things mentioned above, you could improve your chances of getting a loan from the best SBA loan providers, so there will be no need to go to unscrupulous lenders.
Before putting in your application, check out this article on the myths about getting a small business loan. It will shed light on some of the fallacies that you believe in and will give you tips on how you can accomplish applying for a loan.
Read small business loan reviews at CrowdReviews.com to know what others are saying about the most popular SBA lending companies.
Keith Moore
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