Approval for a small-business loan can be difficult. It’s easier than you think. The U.S. Small Business Administration surveyed small businesses and found that more than 70 percent had used financing in the past year. About the same percentage of firms took out loans below $250,000. It is possible to obtain funding for working capital in your business. To maximize your chances of approval, you should pay attention to the application requirements.
1. Get the right paperwork
To establish trust between you and your potential lender, you will need to provide several documents. Balance sheets, bank statement, and tax return are some of the documents that may be required. This information can help demonstrate your company’s financial responsibility. This is a good indication of a lending risk. Not all lenders will ask the same questions. You may be asked to provide personal financial information, or a business plan that has been updated. Be sure to choose lending firms who only require the basic information to evaluate your business loan request. This includes supporting documentation.
Positive Cash Flow
Business lenders prefer borrowers who earn more than they spend on average per month. You are therefore more likely to pay back the loan. You can provide copies of your most recent bank statements or balance sheet to show that you are earning positive cash flows and will be on track.
Revenue
Also known as sales or gross receipts. Revenue is the total amount of money that comes into your business over a certain period. Lenders use your monthly revenue to determine whether you can repay a loan. Your income should be higher. You can also prove this through financial statements or bank statements.
FICO Score
It is possible to get approved for financing despite a poor credit profile. It may complicate the process. Each lender has their own way of evaluating creditworthiness. FICO scores are a convenient and common tool. Prepare some documentation to help lenders understand your low credit score.
2. Fix Your Credit
If you improve your credit, you will have a better chance to be approved for a loan. You must know your company’s credit history to do this. Find out the credit history of your business through reputable monitoring companies like Experian and Dun & Bradstreet. Review it carefully for mistakes or obvious issues that could be negatively affecting your score.
Correcting an error on your credit report will increase your chances of being approved for a loan to start a small company. It is rare for major errors to occur, but they do. Report any incorrect or misspelled information to your credit monitoring agency immediately.
If you have a credit report that contains accurate negative marks, such as late payments or past public judgments, getting a loan for your business is still possible. Lenders may review your credit history as part of the application process, so it is important to be honest about any negative information. You may have a better chance of being approved if you show that you are proactive in repairing your credit score.
If you do not have a good credit score, it is worth considering a line of credit or obtaining a credit card for your business from one of the vendors that you already work with. You can build up your business credit so that you can achieve a high credit score. Some lenders, as mentioned above, will consider your personal finances. Focus on paying your bills on time.
3. Working closely with a Lender
When both parties are on the same page, the process of applying for business loans runs smoothly. Find a lender who will be honest and direct with you when it comes to how they can or cannot help your business. You must also do your part. Explain to the lender in detail your expectations and how you intend to use the money.
The relationship between lenders and borrowers should be defined clearly. Understanding the requirements of the lender and their application process can help you determine if it is a good match for your business.
Online lenders are known to offer faster application processing and approvals. They might also approve business loan applications that traditional banks overlook. They deposit funds much faster than traditional banks.
4. Confidence in Credit Management
Keep in mind that your credit history as a business and the relationship you have with lenders goes beyond capital financing. Experian, the credit agency, explained that a company’s credit score affects more than just its ability to obtain a loan. It helps to determine:
* Loan amount
Interest rates on loans
* Insurance premium pricing
• Trade credit terms with suppliers and vendors.
This means that the majority of financial activities within an organization will influence loan approval. A wholesale firm which pays its suppliers promptly may qualify for a lower-interest loan. construction companies seeking financing may be able to reduce their insurance costs by maintaining a good relationship with creditors. You’ll learn that the past financial transactions of your business will play a significant role in determining whether you are approved for a loan.
Do your research on these topics to ensure that you have the best possible chance of being approved for a loan. Analyze your company’s financial requirements. Weigh the benefits and costs of a business loan. Do your research on the small business loan market but do not apply to multiple lenders simultaneously. Before making a decision, prospective lenders may conduct a “hard credit check”, which could lower your score and remain on your report. A targeted approach to application will help you maintain your business’ credit score while focusing on the right lender.
It comes down to choosing the right lender if you want to improve your chances of being approved for a small-business loan. QuickBridge offers a simple and fast approval process that could result in a short-term business loan within 24 hours. Speak to a funding adviser at QuickBridge about financing your small business.
