Top 4 Tips to Get Approved for a Business Loan.
Getting a business loan can be a nerve-wracking experience.
There are so many factors that you’ve got to set straight. And you’ll usually scout for a while to get the loan you need…
But no worries. Getting approved for a loan is a breeze, assuming you show the lending institution what it wants to see.
And to be specific, there are 4 things that any lending institution will look out for. We’ll mention those to you below!
(1) Business Experience and Financial Backing.
To get approved for a loan, you’ll need a business that’s been successful for 3 years (minimum).
While this isn’t a hard rule, it’s one that many lending institutions follow.
You can probably get a loan for a business that’s been around for less. But that will be from a smaller and more local lender.
The 3 year rule applies more to larger banks and entrepreneurial associations (such as the SBA).
Who’s Guaranteeing the Loan?
Most lenders will demand a lien on your home as a guarantee for you loan. But if your business has sufficient money liquidity as a guarantee, then this won’t be an issue.
Your likelihood of avoiding this problem depends on your credit score. The higher your credit score, the smoother the borrowing process will go, and the more favored you’ll be.
There are other factors that make you favorable in the eyes lenders. For example…
(2) Documentation of Your Cash Flow History.
Cash flow is everything for a business.
If you have a net positive cash flow, and it’s enough to service loan payments, you’ll get a loan. If your cash flow isn’t enough, then good luck.
Cash flow showcases the profitability of your business. And combined with the “3 years of experience” requirement, it shows you have what it takes to sustain a profitable enterprise.
Bring a Credit Report.
While good cash flow is a positive, you should also bring proof of your previous debt payments.
After all, this might not be your 1st time borrowing money. And if you’ve borrowed money before, you can bring documents to show that you pay your dues on time.
Be sure to bring a credit report of your business. It proves responsibility and punctuality.
Document Your Debt Load.
Your debt load shows how much debt you currently have on you.
This shows the lender whether you can handle extra debt or not. Combined with your cash flow statements, you can prove that you’re able to tolerate more debt.
Do note that you’ll need to prepare an argument to state how you’ll use the new debt. You need to convince the lender that you’ll use the money responsibly.
After all, cash flow statements and credit reports aren’t enough…
(3) Present a Business Plan.
Bring along your business plan. And prepare a detailed projection of how you plan to use the money you will be lent.
Remember, getting approved for a loan is an act of perfect marketing. You are essentially a salesman trying to sell a vision…
So you have to perfect your sales pitch, and back it up with facts.
Your lender will likely ask you about risk factors related to your future business plan. They’ll also ask you about contingency measures for your current business plan. For example…
Questions about Cash Flow Fluctuations.
Cash flow is never stable, and is seasonal for many businesses.
You have to present a contingency business plan to your lender. It’ll prove that you can handle market dips while servicing your loan…
Showcase knowledge of your industry as you present the plan. Discuss past challenges, and future challenges that you see, backed up by metrics.
(4) There’s a Wide Lender Market Out There…
Don’t just stick with one financial organization. Shop around and explore your options.
The bank you’re at might not have the best rates around. In fact, their rates and conditions might be a little too troublesome for your business.
And you also don’t have to shop for large organizations only. Look at smaller banks. Or even better, you can try going to another city or state to get the best loans.
That works out well for many businesses.
Wow – That Seems Like a Lot of Work.
It isn’t, if you’re serious about keeping your business afloat.
Most of the work listed here should’ve already been done by you when setting up your business.
The only work you’ve got to do here is to get the documents, structure your sales pitch, and explain the vision of your enterprise!