When seeking to build wealth through your small business, you must spend money first. Most small business owners take out a loan when starting a business or looking for expansion. However, qualifying for a loan is no simple matter. You won’t be instantly granted the funds, and some people have a harder time getting cash than others.
Despite popular misconceptions about bankers being penny-pinchers who don’t like small businesses, banks love funding small business ventures. Not only do such loans help the economy, securing a bank’s return on investment, but they also let bankers make money on interest payments.
Being approved for a business loan isn’t nearly as difficult as some would have you believe. The key is being prepared before walking into the lender’s office. Here are some ways that you can better qualify for a small business loan.
Solicit the Top Online Business Lenders First
Rather than using a conventional bank for a loan where success rates are lower, try getting a loan from one of the top online business lenders. It’s often easier to secure funding through such a corporation, and you may find that the requirements are easier to handle than those of a more conventional loan.
It’s very important to do your research with online lenders to make sure it’s a genuine institution. Read reviews and compare the best business loan lenders to learn more about requirements and get information about applying.
Improve Your Credit
Small business owners generally receive loans based on their personal credit scores. After the business grows or has been operating for a lengthy period of time, they’ll develop a business credit score that can dictate their qualification for a loan.
A perfect credit score is 850, although anything above 750 is considered excellent credit that can get you a loan. On the flipside, lenders are extremely hesitant about granting loans to credit scores below 600. If you’re in the middle ground, you’ll experience a few rejections, but with a great business plan and some persistence, finding a loan isn’t impossible.
If your credit isn’t looking so good, you can work on improving it. The biggest factors that go into your credit score include:
- Payment history
- Amount owed on credit cards
- Outstanding debts
- Length of credit
- Types of credit in use
- Recent credit inquiries
Your payment history and debt amount are the largest factors that impact your credit. To improve it, begin paying down outstanding loans. Make all payments on time to show that you’re a low-risk loan prospect. It may take a couple of years, but you can turn around your credit score and become better qualified for a loan.
Be Prepared with a Pitch
Before you go into a meeting with a loan office, you’ll need to be prepared with a pitch. No one will lend money unless they believe it can be profitable, and the pitch is your time to prove that.
Your pitch should include the main tenets of your business plan. You might also bring a sample of your goods or services. If you want to open a bakery, for example, you could bring your best goods. If you sell products, bring your projected best-selling items.
Your ultimate goal is to tell a compelling story about your company that will have the lender in your corner. Don’t simply say you want a loan to open a bakery. Explain how you got to this point and how you’re certain you’ll succeed.
Bring the Right Documents
After making your pitch, the banker will go through certain financial and legal documents to make sure you’ve done your due diligence. Documents they’ll ask for include:
- Official photo identification
- Commercial leases
- Business licenses
- Personal and/or business income tax returns
- Personal and/or business bank statements
- Articles of incorporation
- Financial projections
- Balance sheet and income statement
They may also look up certain documented information like a criminal background check and your credit score. If you come prepared with the correct documents, you can speed up the process and make yourself look like a more viable loan prospect.
Sometimes loans will require collateral in case payments fall through. It usually comes in the form of a large asset like real estate, inventory, or equipment. That way, the bank is guaranteed payment in case you’re unable to pay.
Most SBA loans, for example, require collateral as a form of security on your loans, plus a 20 percent equity in the business until the loan is paid off. Some online lenders will wave this collateral, but it just depends on what you’re applying for and your risk assessment. Look into the lender’s requirements before applying.