The average cost of starting a business from scratch is estimated to be about $30,000.00. For many organizations, that number can be much higher.
If you're a business owner just starting out or an aspiring one that's looking to get started soon, you're probably facing down the reality of not having enough cash to sustain your day to day operations out of the gate.
Therein lies the value of a small business loan.
Business owners can apply for a small business loan from a variety of different lenders. That being said, your business plan, credit, and other factors may lead your application to get rejected.
To improve your small business loan approval odds, our team has put together this article on different things you can do to help improve your chances of securing the funding you need.
1. Understand Loan Types
Small business loans come in a variety of shapes and sizes. Having an understanding of what those shapes and sizes are can help improve your chances of small business loan approval.
As an example, when you're looking for a small business loan you may see the following products:
● Small Business Line of Credit
● Working Capital Loans
● Small Business Term Loans
● SBA Small Business Loans
● Small Business Credit Cards
● Equipment Loans
For most small business owners and entrepreneurs starting out, a recommended business credit card is usually a great option. The benefit here is that there are little to no fees associated with this cards when they are paid on time. Some will even provide customers with rewards that can quickly accumulate over time.
Each of the above products fulfills the end of getting you the money you need to finance operations but in different ways. Educate yourself on products that are available to you and understand which best suits your needs. Then, seek out lenders who offer the loan product you're looking for.
2. Do Your Diligence With Lenders
Different lenders will offer different loan products that carry different terms and conditions. To make sure that you're getting the best deal, it's important to assess as many lenders as possible before filling out an application.
Small business loan lenders can be found through traditional brick-and-mortar banks and online. With online lenders, be wary of predatory rates.
Any lender who seems disinterested in understanding your business before lending you money should raise a red flag in your head.
3. Know Your Numbers
Most reputable lenders will want to know the ins and outs of your business before lending you money. Because of that, you should have detailed reports available that disclose your company's profits, losses, assets and other essential information at your lender's request.
4. Know What You Want
Knowing the amount of money you want, what kind of loan you want it through, and what you're planning on using the money for is integral to you securing your loan. Be sure to think through what your needs are and how a loan is going to help you fulfill them before engaging a lender.
5. Check Your Credit
For many small business owners, securing a line of credit may rely on the condition of their personal credit score.
If you're not sure what your credit score is, consider using a free service like Mint or Credit Karma to figure it out. You can also request a free credit report from the major credit bureaus as is described in this article on the Federal Trade Commission's website.
If your score is sub-par, it could benefit you to rehabilitate it before applying for lines of credit.
6. Make Sure You Fill in Applications Correctly and Thoroughly
A small business loan application will ask you a lot of intimate information about your business. Your ability to answer those questions accurately will have a large impact on your small business loan approval odds.
Things to know/have before starting an application include:
● Your company's name
● Your company's tax ID
● Company's legal structure
● Financial statements
● Copies of insurance policies
● Your credit report
● Business plan
● Bank statements
The above list is just an example of some things that could crop up on an application and is by no means a comprehensive list of information that could get asked of you.
7. Consider Putting Up Collateral
If you have business assets in the way of investments or machinery, those assets could be put up as collateral to help you get the loan you need. Consider before applying for a small business loan whether or not you're willing to put up collateral.
If you are, know specifically what you'd be willing to offer as your loan application may ask you to itemize your potential offerings.
8. Know Your Loan's Terms and Conditions
Sometimes getting a lender to offer you a loan is easy. Getting a good deal however can be much harder.
That's why it's important that you fully understand all of the terms and conditions surrounding your loan product before signing off on it. Signing off on a bad loan could mean financial ruin for your business.
If you ever find yourself unable to pay back a business loan awarded by the SBA, learn more about how an attorney can help.
9. Make Sure Your Online Presence is in Order
As part of the loan review process, some lenders may have investigators look up your business online. The way your business' image comes off on your company's website, social media platforms, etc. can weigh into your small business loan approval decision.
To make sure no red flags come up, clean up your online presence and make sure all information is up to date.
10. Learn From Rejection
If you get rejected for a small business loan, the best way to improve your odds of getting an approval next time around is to learn from what went wrong.
Most lenders will mail you a reason as to why your loan got rejected within 30 days after your loan get denied. Take their reasoning to heart and address those issues before filling out another application.
Wrapping Up Surefire Tips to Ensure Small Business Loan Approval
There you have it! 10 Tips to ensure small business loan approval. We recommend taking our advice to heart and leveraging as many of our suggestions as possible to improve your odds of getting the funding you need to make your business flourish!
For more of the best business related advice you can find online, check out more of our content on Sustainable Business Forum today!
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