Applying and receiving a business loan can be a tedious process however it does not have to be a complete headache. Obtaining the capital you need for your business can be easy if you come to the application process prepared. Lenders are more likely to lend to you if you are organized and display that you are a reliable individual that will pay the loan back on time. If you are looking to make the loan application process smooth as well as speedy, then you are in the right place. Below are a few tips on how to prepare and improve your chances of approval.
Keep your documents in order.
A clear understanding of your financial structure and state of your business is absolutely imperative. The application process will be less of a hassle if you keep all financial, accounting, and tax records up-to-date as well as accurate. Getting organized is not so bad however staying organized can be tedious. Consider using innovative platforms to keep everything organized. Many often consider hiring an accountant to handle financials. It’s all about knowing yourself and disciplines. It is not unheard of for small business owners to be cost-efficient by governing their own finances. However, this often leads to owners neglecting their books because life happens. If you are that individual who is just methodical and can stay up to date with the books, by all means, do so. If you have to question your discipline then I highly encourage you to get an accountant.
Maintain good credit.
Keeping your documents in order is essential, however, it does not supersede maintaining a good credit score. You definitely want to avoid credit casualties such as foreclosures, bankruptcies, and late payments. Banks may have different credit requirements, but without a doubt, you need good credit to receive a loan. When applying, sometimes a lender may require a credit report that can have a small impact on your credit. Do not run the risk of canceling your chances of receiving a loan because of too many inquiries. Lenders will do a hard pull when you submit a full loan application. The hard pull will knock a few points off of your credit score which does not seem like a big deal until you submit multiple full loan applications. The best advice is to apply to the loan that you have the probability of receiving.
Know which type of loan you need.
Before walking into a bank and filling out a loan application it is best to know what type of loan you need. Applying for a tedious loan where they inspect every bit of your paperwork when in reality your business just needed a line of credit can lead you down the path of getting denied. There is a stigma that small business loans are hard to get approved for. Loan approvals depend on the program you decide to go through. If you are applying to an SBA loan be aware of their higher standards and 30-90 day process. SBA (Small Business Administration) loans require more documentation than many other programs. As a business owner, if you were to apply for a merchant cash advance or a nice line of credit those requirements are less exhausting.
Demonstrate sufficient cash flow.
As a for-profit business, you should without a doubt be able to demonstrate cash flow and it is enough to make your loan payments. Lenders will look into your past tax return as well as view your existing debt. If you are making a business acquisition or starting your business from ground zero you should be able to show a cash flow model and financial plans. Your idea may be great but lenders solely care about their money being returned at the time agreed upon.
Understand that every bank is different.
Every financial institution has its pros and cons when it comes to lending. Receiving a small business loan from a larger institution can be difficult because those institutions are preoccupied with larger clients. It is nothing against you, it’s just that the bigger the loan the bigger the return. Smaller institutions could potentially give your loan request more attention and less stringent terms. Always do your research and shop around for the best situation. Small banks in opposition to larger banks are built upon personal relationships. Creating a personal relationship with your local banker as well as placing a story behind why you need the loan can also increase your chances of being granted a loan. A good relationship at a small bank can make all the difference.