You need a business loan and think that filling out the required documents and submitting them will suffice. However, there is more to the process. There are certain things you can do to put yourself in a good position to obtain the loan you need. Below are 5 tips when applying for a small business loan and abiding by them will increase your chances of success.
1. Have all your documents in place
Even though different lenders have varying qualification requirements, they will all require you to have the appropriate documentation to prove your business is prosperous and you have the ability to repay the loan. Such documents can include bank statements, tax return documents, insurance policies, and licenses that prove your company is eligible to operate.
It is also essential to keep your relevant documents up to date. The best practice to help you accomplish this is to have strict reporting deadlines. That way, when the time comes to request a loan, you will have everything you need to move the process along.
2. Tell your story
The secret to being successful in your business loan application is by providing only truthful information about you and your business. You might get away with exaggerating profit numbers on occasion, but you risk compromising the reputation and integrity of your company if you were ever exposed. This will greatly affect your ability to get a loan in the future.
When applying for a business loan, provide up to date documents, respond on time, and give honest information regarding the purpose of the loan. Always remember that your lender is well trained to detect any inconsistency in your numbers and story. Any perceived red flags may mean you are turned down for the loan and this may put your ability to do business in great jeopardy.
3. Maintain a good credit score
Most lenders, especially banks, will consider your credit score during the approval process. You will be required to meet some credit criteria for your business loan to be approved. Having a bad credit score will show your inconsistency in paying loans and inability to handle your finances. Some lenders also have an issue if you have no credit score as this shows you have little experience in borrowing.
More importantly, avoid applying for multiple loans at the same time. Most lending agencies perform a check on your credit score before approving you for a loan. This results in some few points being knocked off your credit score. While a single knock-off may be insignificant, the effects can be severe if these points are deducted over multiple loan applications.
4. Target the right lenders
Before submitting your loan application to a potential lender, ensure that your business meets their criteria of awarding loans. This is with regard to the nature of your business and the status of your credit score.
Again, banks will require a minimum credit score of 680 which is relatively high when compared to online lenders and microlenders requirements. However, among them all, banks can offer loans with significantly higher amounts. Online lenders, on the other hand, may require no collateral but have a high annual percentage rate (APR) which makes it almost impossible for small businesses to pay off the loan before interest rates make the loan difficult to manage.
5. Do not request too much
Some businesses tend to borrow more than they need which causes problems later on. This is because interest rates on larger loans tend to be higher and some business owners are not disciplined enough and will use the amount if available.
Always remember that all loans need to be repaid. There is no need for requesting excessive amounts as failure to repay it will adversely impact your credit score. This will also damage your ability to carry on as a business as the chances of getting another loan in the future would be slim to none without potential collateral and astronomical interest rates. Your potential lenders can tell when you are exaggerating your financial needs. This means you will have a hard time trying to convince them to award you the business loan.