It can be frustrating and potentially stressful when you are looking to get a small business loan. There can be long applications and lots of paperwork as you go through the process, and you can still end up being rejected. That can be hard to swallow. Business loan rejections happen even to well-established and successful companies.
So how can you turn things in your favor and increase the likelihood that you will get the business loan you are applying for?
Understand the lender requirements
You need to make sure that you are meeting minimum lending criteria to become a strong applicant for a business loan. Some lenders may have some flexibility in one area, such as turnover or credit history, but no flexibility in others. By understanding, as far as possible, the lending criteria, you can avoid wasting your time.
Make sure your business plan is strong.
Businesses lending to you will want to know that you have a strong plan and realistic expectations. Pay special attention to your executive summary, as this will be the first thing that potential lenders will likely read.
The executive summary is like the cover letter or the first half page of your CV. It can be the most important thing that sets the lender on course to accept or reject you if they aren’t using an automatic lending acceptance or decline system.
Continually improve your credit score.
By reviewing and improving your credit score, you are more likely to get a loan for your small business. Your credit score is perhaps the most important thing when applying for a small business loan, especially if you are a sole trader. Reduce your credit card usage percentage, make sure you are on the electoral roll, and get all payments up-to-date.
Know your business numbers
You will not be taken seriously if you don’t know your numbers. The biggest thing that people want to know is, will you be able to afford to pay back the business loan?
By having a clear sales forecast, accurate balance sheet, and by showing how are you going to repay the debt, you are more likely to get the loan.
Improve the health of your business
There are lots of financial technology companies that can look at the health of your financial business and help you to develop better business health. This can include eliminating spending leaks and prioritizing where you invest your money to grow the business. This is one of the reasons why your business bank account matters, as the right account makes it easy to manage your day-to-day transactions.
Work out if you can provide security or guarantees.
The most important thing for any lender is to know that you are going to be able to pay back the loan. By offering guarantees or security, you can reduce the risk to the lender. This may happen through putting up equipment, accounts receivable, or property to increase the likelihood of getting accepted, or improve terms that you receive.
Make sure your documents are ready.
Your lender will likely want to see your business tax returns, your debt to equity ratio, and your limited company paperwork. Make sure that you have seen the list of what is needed for a business loan application and that you have it already.
Be honest about everything, as transparency is key.
Don’t expect more than you deserve
As a new business, you are unlikely to be able to command a huge business loan, and you may have to look at personal loans if you need major capital. Understand what the lender sees and what they are expecting from you. You will be more likely to apply for the right amount of business loan.
It’s possible to look at non-traditional business financings, such as peer-to-peer business financing and investment capital, if banking relationships are not the way forward for your business. The key is to get what is right for your business and only to get money when you need it.