Having your small business loan application approved is challenging for some businesses. While this is true, with a few tips, you can increase your odds of hearing “yes,” rather than “no.”
Improve Your Personal Credit
You may wonder why your personal credit matters if you are trying to secure a business loan. If you don’t have business credit or in situations where your business credit is poor, you will have to rely on your personal credit for funding. Also, if you apply for a loan through the Small Business Administration or SBA, your personal credit matters, too.
While not all lenders consider your personal credit, some will. Because of this, it’s smart to take steps to improve your situation before applying.
Create a Business Plan
Lenders will want to know how you plan to use their money. They also want peace of mind that you will be able to repay the loan. The best way to provide this information is by creating a business plan and presenting it to potential lenders.
Before applying for a business loan, have a solid business plan that demonstrates how your business will get the cash needed to cover operational expenses and manage loan payments. If a lender can see this information clearly, they will have more confidence in lending you money.
Reduce Your Debt-to-Income Ratio
It’s smart to reduce your debt-to-income ratio on the personal and business side of things before applying for a business loan. This is a basic element that lenders look for. If your debt is too high compared to your income, then lenders will see it as an indication that you may not be able to make your payments.
Maintain a High Bank Balance
There are a few reasons to maintain a high bank balance each day. Some loans will base approval on your bank balance instead of your business income. Also, most lenders want to know that you have cash available to make payments on the loan.
Increase Business before Applying
A lender is more likely to approve a loan for a business that is currently generating revenue. You won’t have this boost if you have just opened your business. However, if you have been operational for a while, spend time boosting sales as much as possible.
When it comes to applying for a business loan, there are more than a few factors to consider to ensure your loan is approved. Being informed is the best way to get the funds you need to support ongoing business growth.
