7 Tips To Help You Qualify For A Small Business Loan
Topic - Savings Tools
Published by| Jul 01, 2022
Small businesses have many advantages, like lower investment/startup costs, an earlier breakeven point, and generally an earlier profit point than large businesses. However, while the investment is lower, many entrepreneurs still choose to apply for a loan to pay for that investment to start a new small business.
If your small business is already up and running, a small business loan might provide the cash influx that enables you to take your business to the next level.
The process of applying for a small business loan could be a little time-consuming, but these tips will help you maximize your chance of getting approved.
Show them that you can pay it back:
The most important thing that lenders will want to know is that you will be able to pay back the loan. As a new business owner, it could be difficult for you to provide evidence that you are able to pay the loan back. Be sure to get your finances in order because you'll need to show the lender complete financial details to prove your ability to repay. For existing businesses, this will include showing monthly profit versus expenses. The longer the history of positive revenue you can show, the higher your chance of being approved.
Guarantee the loan with personal assets:
Lenders will evaluate your businesses assets and debts. If your business is just starting or relatively new, the lender might also require personal assets as collateral. However, keep in mind that if you do not repay the business loan, whatever assets you used to secure it will be vulnerable.
Consider a co-applicant:
Lenders will evaluate not only your business but also your personal debt and income situation. If you are a solo applicant and also have considerable personal debt, they will consider this as a negative toward your business and could turn down your small business loan. Having a co-applicant involved with the business who has low personal debt and good credit standing could increase your chance of approval.
Disclose your financial situation clearly:
It is likely that during the qualification process your lender will discover any previous negative financial situations, so you might as well be candid about them and provide the details up front. This also gives you a chance to explain the situation rather than appear as if you were trying to hide it.
Provide a detailed business plan and accurate market research:
Your business plan should summarize your company, your products or services, your market, and your financials. A key part of a business plan is understanding the market that your business operates in, why your business is essential in that market, and realistic predictions of future financials. This will help the lender see your business earning potential and therefore your ability to pay back the loan.
Seek expert advice:
It is a smart move to seek the advice and expertise of successful business people in your field to aid you with your loan approval. There are in fact many organizations, such as the Service Corps of Retired Executives (SCORE), that can put you in touch with retired business owners and executives from your field who can mentor you through the process.
Explore alternative non-bank lenders:
These days there are many internet-based and non-bank institutions that provide small business loans, and their qualification process might be more suitable for your specific situation. However, keep in mind that not all of these lenders are regulated by the same governing bodies, so the way they calculate interest and other factors might not be the same. Be sure to read the fine print, and make sure that you understand all the terms.