A small business loan is a type of debt financing that enables your business to pay for assets and services not covered by your cash flow. Before approaching a lender, here are a few things you can do to persuade a lender to approve your loan application.
Improve Your Credit Score
If you and your business partners are planning to apply for a small business loan, it is important that each of you have a good credit score. Lenders use this number to determine whether or not they will approve your application. A high credit score demonstrates that the members of your core team are responsible with money and can be trusted with larger sums of cash. You can check your score online as well as through your local credit union or bank branch.
Show Successful Financial Management
Lenders want to know that they are making sound investments in businesses that can afford their loans and pay them back on time with interest attached. Showing positive financial management is a great way to make lenders feel confident about approving your application for funding because it shows them that your business has the potential for growth and stability.
Make Sure Your Income Is Consistent
If your business’ income tends to vary from month to month or quarter to quarter, this could be detrimental to getting approved for a loan. The lender essentially wants proof that you can afford monthly payments, so they know they will get paid back in full when they give out a loan. If your income for the past few months has been inconsistent, consider providing the lender your financial statements for the last few years, so they can assess how much you make on a yearly basis.
Be Realistic with Your Business Plan
When applying for a business loan, lenders want proof that your plan is realistic and achievable based on their standards of success and growth expectations within the industry. So, ensure you provide a detailed business plan which mentions how you intend to grow your business in the near future.
Have Collateral
Lenders want to make sure that they will get their money back, so they require collateral from borrowers who cannot offer them a good track record. The most common and accepted forms of collateral are real estate or equipment, but there are also other assets such as inventory or accounts receivable that can serve as collateral. However, keep in mind that not all lenders accept collateral, and it may not help much even if they do accept it because it takes time to sell and liquidate assets in case you default on your payments.
